In the Matter of Del Norte Depot, Inc., Bankrupt.the Chartered Bank of London, Plaintiff-appellant, v. Lawrence A. Diamant, As Trustee of Del Norte Depot, Inc.,defendant-appellee, 716 F.2d 557 (9th Cir. 1983)

The Chartered Bank of London (Bank) appeals from a district court order affirming a judgment of the bankruptcy court holding the Bank's security interest in property of Del Norte Depot, Inc. (Del Norte) unperfected and ordering repayment of moneys paid it by the debtor.¹  We reverse.I

The issues in this case revolve around alleged defects in filings of UCC financing statements and publication of bulk transfer notices by the Bank. The validity of payments made by Del Norte to the Bank are also challenged. The facts are somewhat complex.

In March 1972, Del Norte opened "The Depot Restaurant." To refinance purchases of furniture, fixtures and equipment which it had earlier purchased from several vendors, on March 27, 1972 Del Norte borrowed $62,499.00 from the Commercial and Farmer's National Bank.²  On the same day, Del Norte executed a written security agreement in favor of the Bank purporting to secure the loan and all future advances made by the Bank with specific items of Del Norte property. The Bank recorded a UCC financing statement in the office of the California Secretary of State on April 13, 1972 but failed to list the debtor's trade name in its filing. No bulk transfer notice was published or recorded in connection with this transaction. After a fire at the restaurant in April, the Bank, in December, advanced $12,499.80 more to Del Norte which was used to pay for additional property which the company had earlier obtained on credit from its suppliers. (Both the March and the December loans will be referred to as the 1972 loans).

In September 1974, Del Norte opened a second restaurant under the name "Mama Mia's," and on March 17, 1975 executed two promissory notes to the Bank. The first, for $36,143.89, was to refinance the two 1972 loans, while the second, for $80,000, was used to satisfy a $47,000 loan from Commercial and Farmer's Bank and a $33,000 loan from American National Bank. (These will be referred to as the 1975 loans). Security agreements were executed in connection with both notes, and on March 20 the Bank filed a second UCC financing statement with the Secretary of State describing as its collateral all restaurant furniture, equipment and fixtures owned by Del Norte and described in the March 17 security agreements. The financing statement again failed to list the debtor's trade name. A bulk transfer notice was published on March 4. In September, the name of Mama Mia's restaurant was changed to Jackson's Restaurant.

In July 1976, the Bank made a Small Business Administration guaranteed loan to Del Norte of $212,500 (the 1976 loan). Del Norte executed another security agreement and financing statement providing for an all-inclusive pledge of the bankrupt's property at both the Depot and Jackson's restaurant. The Bank filed a UCC financing statement in connection with this transaction but did not publish or record a bulk transfer notice respecting the 1976 security interest it had taken.

On April 5, 1977, Del Norte filed a petition for relief under Chapter 11. After it filed its petition but before it was adjudicated a bankrupt, Del Norte made payments to the Bank totalling $32,967.69. These payments were made by checks countersigned by the bankruptcy judge.

On March 8, 1978 the Bankruptcy Court entered its order adjudicating Del Norte a bankrupt, and Appellee Diamant was thereafter appointed trustee of the Del Norte estate.

Diamant challenged the Bank's security interests, arguing that failure to list Del Norte's trade name in the 1972 and 1975 financing statements filed by the Bank made the security interests taken by the Bank in those years unperfected, and that the 1976 security interest is void due to the Bank's failure to publish a bulk transfer notice. The trustee argued also that the post-bankruptcy payments made by Del Norte to the Bank were contrary to the provisions of Sec. 70d of the Bankruptcy Act and must be returned to the trustee. The bankruptcy court held for the trustee on all counts and the district court affirmed. The Bank appeals.

II

It is not disputed that the financing statements filed by the bank in connection with the 1972 and 1975 loans failed to indicate that Del Norte was operating under the trade names "The Depot Restaurant" and "Mama Mia's Restaurant." We held in National Cash Register Co. v. Danning (In re Thrift Shoe Co., Inc.), 502 F.2d 1211, 1213 (9th Cir. 1974), that under California law a financing statement which failed to list a debtor's trade name was insufficient to perfect a security interest.³  Relying on our holding in National Cash Register, the bankruptcy court held that the Bank's 1972 and 1975 security interests were unperfected and that, under Sec. 70c of the Bankruptcy Act, the trustee's rights are thus superior to those of the Bank.

Although conceding that its filings in connection with the 1972 and 1975 loans were ineffective to perfect its security interests, the Bank argues that transition provisions passed by the California legislature in connection with the 1973-74 amendment to the California version of the Uniform Commercial Code (the California Code) save those security interests.⁴  We agree. Section 11107 of the Code provides that the California version of the Uniform Commercial

code as it existed prior to January 1, 1976, shall apply to any questions of priority if the positions of the parties were fixed prior to January 1, 1976. In other cases questions of priority shall be determined by this code as amended by the Legislature at the 1973-74 Regular Session.

Cal.Com.Code Sec. 11107 (West Supp.1982)

Since the amended version of the California Code does not require a financing statement to list the trade name of a debtor, whether the failure to include the debtor's trade names in the 1972 and 1975 filings causes the security interests taken in those years to be unperfected depends when the positions of the parties were fixed. Section 70c of the Bankruptcy Act gives the trustee the rights of a "creditor who obtained a judgment against the bankrupt upon the date of bankruptcy, whether or not such a creditor exists," 11 U.S.C. § 110(c) (1976) (repealed 1978). Since the rights of the trustee did not arise until the date of bankruptcy, April 5, 1977, it was not until that date that the positions of the parties were fixed. Thus, under Sec. 11107, questions of priority between the Bank and the trustee are governed by the amended version of the California Code and the Bank's security interests are perfected. The Bank thus takes priority in the Del Norte property over the trustee.⁵ III

We turn next to the various defects alleged to exist in the bulk transfer notices required to be published in connection with the 1975 and 1976 loan transactions.⁶  We deem the question whether the 1975 notice met the requirements of Sec. 6107 irrelevant, for we hold that the bulk transfer notice published in connection with the 1975 loans is immune from challenge because the applicable statute of limitations expired before the debtor filed its petition in bankruptcy. Section 6111 of the California Code provided that, in the case of a security interest which constituted a bulk transfer, no action could be brought under the Code more than one year after the date on which the security interest was perfected unless the transfer was concealed, Cal.Com.Code Sec. 6111 (West Supp.1982).⁷  We have held that Sec. 11107 caused the Bank's security interest to be perfected as of January 1, 1976, the effective date of the 1973-74 amendments. Any challenge to the Bank's interest would thus have to have been brought by January 1, 1977. Since the trustee's rights did not come into existence until April 5, 1977, the date the petition in bankruptcy was filed, the trustee's challenge to the 1975 notice must fail.

The 1976 transaction, however, is not similarly immune. No bulk transfer notice was ever published or recorded regarding that transaction. The statute of limitations does not bar the trustee's challenge to the 1976 security interest, for the trustee has two years from the date of the adjudication of the debtor as a bankrupt to bring any challenge for which the statute of limitations had not expired on the date the petition in bankruptcy was filed.⁸  Since no bulk transfer notice was published, the 1976 security interest, standing alone, is avoidable by the trustee. Yet the 1976 loan was merely a refinancing of the loan made in 1975, which we have held to be immune from attack. When the Bank made the 1976 loan it was not required to file a new financing statement to cover the collateral already pledged in 1975. The fact that one was filed does not void the 1975 financing statement, for only the expiration of the 5-year time limit provided for in California Code Sec. 9403⁹  or the filing by the Bank of a termination statement¹⁰  would have that effect.

Because the 1975 financing statement is immune from challenge, and the filing of the 1976 statement did not void it, we hold that the trustee may avoid only that amount loaned in 1976 secured by collateral different from that pledged in 1975.

IV

The final portion of the bankruptcy court's opinion held that the $32,967.69 paid by Del Norte to the Bank after it had filed its petition was a post-bankruptcy transfer contrary to Sec. 70d of the Act. We need not decide whether Sec. 70d prohibits the payments, however, for we hold that the payments made by Del Norte to the Bank are voidable regardless of whether Sec. 70d applies. Had such payments been made by Del Norte while it was insolvent and within four months before the filing of the petition they would have been voidable as a preference. We will not allow unauthorized actions by a trustee which, if done by the debtor, would "be a fraud on the act, as it would work an unequal distribution of the bankrupt's property." Otte v. Manufacturer's Hanover Commercial Corporation (In re Texlon Corp.), 596 F.2d 1092, 1097 (2d Cir. 1979), quoting Tiffany v. Boatman's Institution, 18 Wall (85 U.S.) 375, 388, 21 L. Ed. 868 (1873).¹¹ 

We thus hold that the payments made by Del Norte to the Bank must be returned. This holding, of course, does not reduce the amount to which the Bank is entitled in satisfaction of its 1975 security interest.

The judgment is reversed and the cause remanded. On remand the court is to determine the value for which the 1975 collateral was sold¹²  and order this amount paid to the Bank. The payments made by Del Norte to the Bank are to be offset against this amount. Any remaining excess is the property of the trustee.

REVERSED and REMANDED.