APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA D.C. Bankruptcy No. 75-856 EG
Before Gibbons, Hunter and Garth, Circuit Judges.
This appeal requires us to interpret UCC section 9-402(1) (Pa.Stat.Ann. tit. 12A, § 9-402(1) (Purdon 1970)), which states in pertinent part that "(a) financing statement is sufficient if it . . . contains a statement indicating the types, or describing the items, of collateral."*fn1 The Bankruptcy Court held that a financing statement describing the collateral for a note as "(all) assets as contained in the security agreement (installment note) executed even date herewith" did not satisfy the requirements of section 9-402(1). The district court reversed, ruling that the description of collateral was adequate under the statute. We hold that the financing statement at issue failed to comply with section 9-402(1), and thus reverse the district court's order.*fn2
H. L. Bennett Co. (Bennett), the bankrupt, purchased in 1973 the assets of V.A. Herman, Inc., whose only shareholders were Irvin and Lauretta Sall (the Salls). Bennett was unable to pay the entire $46,000 purchase price in cash, so it executed a note to the Salls for the balance due, along with a security agreement. The security agreement, dated May 31, 1973, listed as collateral for the note:
all inventory, machinery, equipment, motor vehicles, and all items of personal property belonging to Undersigned presently upon premises 4222-24 Ludlow Street, Philadelphia, Pennsylvania, and hereafter acquired, subject, however, and subordinate to any and all bank loans or claims of banking institutions, together with: (a) all proceeds of the property, including cash, stock and other dividends and rights to subscribe to securities incident to such property; (b) all additions to, exchanges or substitutions for the property; and (c) all property of Undersigned now or at any time hereafter in the possession of Payee or other holder of this note in any capacity whatsoever.
The Salls' financing statement was filed on June 6, 1973. It identified the collateral as "(all) assets as contained in the security agreement (installment note) executed even date herewith." The security agreement was not attached to the financing statement nor otherwise publicly filed. The First Pennsylvania Bank N. A. (Bank) subsequently loaned money to Bennett and another security agreement was executed. The Bank filed a financing statement, the adequacy of which is not challenged in this appeal.
Bennett eventually filed for bankruptcy and both the Salls and the Bank claimed against the estate as secured creditors. The Bank objected to the Salls' secured status. It contended that the Salls' claim had not been perfected because the reference in the Salls' financing statement to "all assets" was neither an indication of the types, nor a description of the items, of collateral, as required by section 9-402(1). As a result, the Bank asserts that it has a prior right to the assets listed in its financing statement.
The sole issue presented by this case is a narrow one of statutory interpretation: Is the description of collateral in the Salls' financing statement as "(a)ll assets as contained in the security agreement (installment note) executed even date herewith" sufficiently specific to satisfy the requirement of section 9-402(1) that a financing statement contain "a statement Indicating the types, or Describing the items, of collateral?" (emphasis added). We hold that it is not.
The weight of authority indicates that a financing statement must describe collateral with some degree of precision in order to meet the standards of section 9-402(1). Professor Grant Gilmore, who played a preeminent role in drafting Article 9 of the UCC, wrote that a drafter of a financing statement could not satisfy the statutory requirement that collateral be identified by "type" or "item" merely by stating, as the Salls' did, that all of the debtor's assets served as collateral. Professor Gilmore suggested that "(t)he description by "types' (in section 9-402(1)) is understood to require a certain degree of specificity: it would not be sufficient for the notice to claim "all the debtor's property,' " a phrase equally broad in scope to the "all assets" language used by the Salls. 1 G. Gilmore, Security Interests in Personal Property § 15.3, at 477. Professor Gilmore's view that the statute requires greater particularity in identifying collateral than that contained in financing statements similar to appellees' is shared by the courts that have faced this question.
In In re Fuqua, 461 F.2d 1186 (10th Cir. 1972), the Tenth Circuit held that a reference to "all personal property" in a financing statement "does not even approach a description of property by type or (item) as is required" by section 9-402(1). Id. at 1188. And in In re Lehner, 303 F. Supp. 317 (D.Colo.1969), Aff'd 427 F.2d 357 (10th Cir. 1970), the district court held that:
While the Comment (to section 9-402(1)) states that the financing statement is sufficient if it puts potential creditors on inquiry notice, the statutory language . . . clearly requires some specificity of description the financing statement must indicate the Type ...