CORONA FRUITS & VEGGIES, INC., Et Al., Defendants and Appellants

Chapter 29: Secured Transactions 449

Chapter 29

Secured Transactions

Case 29.1

143 Cal.App.4th 319, 48 Cal.Rptr.3d 868, 60 UCC Rep.Serv.2d 1399, 06 Cal. Daily Op. Serv. 9051, 2006 Daily Journal D.A.R. 13,003

CORONA FRUITS & VEGGIES, INC., et al., Defendants and Appellants,

v.

FROZSUN FOODS, INC., Plaintiff and Respondent.

No. B184507.

Sept. 25, 2006.

Review Denied Dec. 20, 2006.

, Acting P.J.

*321 Shakespeare asked, “What's in a name?” We supply an answer only for the Uniform Commercial Code lien priority statutes: Everything when the last name is true and **869 nothing when the last name is false. When a creditor files a UCC-1 financing statement, the debtor's true last name is crucial because the financing statements are indexed by last names. A subsequent creditor who loans money to a debtor with the same name is put on notice that it's lien is secondary. The trial court here found that Corona Fruits & Veggies, Inc. and Corona Marketing Company, (appellants) failed to perfect a security interest in a strawberry crop because its UCC-1 financing statement erroneously listed the debtor's last name. We affirm. (; 9506, subd. (b).)

Unless otherwise stated, all statutory references are to the California Uniform Commercial Code.

Facts and Procedural History

In 2001, appellants subleased farm land to a strawberry farmer (debtor) who went by the last name of “Munoz.” The sublease, as well as other documents given to appellants, stated that debtor's name was “Armando *322 Munoz Juarez.” That was and is his full true name. But he signed the sublease “ Armando Munoz.”

Appellants advanced money for payroll and farm production expenses. On July 2, 2001, appellants filed a UCC-1 financing statement listing debtor's name as “Armando Munoz” and a second UCC-1 financing statement on January 17, 2002, listing the same name. In December 2001, debtor contracted with respondent Frozsun Foods, Inc. (Frozsun Foods) to sell processed strawberries. Frozsun Foods advanced money which was secured by a January 17, 2002 UCC-1 financing statement listing debtor's last name as “Armando Juarez.” As of July 26, 2002, debtor owed appellants $230,482.52 and owed Frozsun Foods $19,648.52. When debtor was unable to meet his loan obligations, appellants took back the farm land, harvested the strawberry crop, and kept the crop proceeds. Appellants and Frozsun Foods filed collection actions which were consolidated for trial. (.) The trial court found that debtor's true legal name was “Armando Munoz Juarez, ... as shown on his identification documents as well as the documents of [appellants] and Frozsun, Inc....” The trial court concluded that appellants and Frozsun Foods knew debtor's true legal name, “but only Frozsun Foods, Inc. recorded its UCC-1 statement under that full name[.] [I]ts recording supercedes the two recordings by [appellants] using only part of Munoz's name.”

True Last Name

In California, the filing of a UCC-1 financing statement is generally required to perfect a security interest or agricultural lien. (§ 9310, subd. (a): .) “The requirement that a financing statement provide the debtor's name is particularly important. Financing statements are indexed under the name of the debtor, and those who wish to find finance statements search for them under the debtor's name. [Citations.]” (Id., at pp. 639-640, .)

*323 Substantial evidence supports the finding that debtor's true last name was “Juarez” and not “Munoz.” The pleadings state that debtor's last name is “Juarez,” as do many of appellants' business records. Debtor provided appellants with a photo I.D. and Green Card bearing the name **870 “Armando Munoz Juarez.” The name appears on the sublease and other documents including the Farmer Agreement, a Crop Exhibit, a second sublease agreement (identifying debtor as “Juarez Farms, Armando Munoz Juarez”), a crop assignment, appellants' accounting records, receipts for advances, appellants' letters to debtor, and checks issued by appellants. Debtor identified himself by the last name “Juarez” on two tax returns, in tax documents issued by appellants, in debtor's dealings with the U.S. Department of Agriculture, in debtor's bankruptcy petition, and in debtor's business dealings with Frozsun Foods.

Misleading Financing Statement

Citing appellants argue that the question of whether they have a perfected security interest is subject to de novo review. It addressed whether a UCC financing statement adequately described the collateral in which a bank claimed a security interest. The Court of Appeal held that interpretation of the security agreement was a question of law. We agree with the holding of that the adequacy of a UCC financing statement presents a question of law, and is reviewed independently on appeal. This, however, does not aid appellants. As a general rule, minor errors in a UCC financing statement do not affect the effectiveness of the financing statement unless the errors render the document seriously misleading to other creditors. (See , formerly 9402; [discussing former § 9402]; [same].) , however, provides: “[A] financing statement that fails sufficiently to provide the name of the debtor in accordance with is seriously misleading.” There is a safe harbor. “[I]f a search of the filing office's records under the debtor's correct name, using the filing office's standard search logic, if any, would nevertheless disclose that financing statement, the name *324 provided does not make the financing statement seriously misleading. (” (4 Witkin, Summary of Cal. , at p. 642.) The record indicates that Frozsun's agent conducted a “Juarez” debtor name search and did not discover appellants' UCC-1 financing statement. No evidence was presented that the financing statement would have been discovered under debtor's true legal name, using the filing office's standard search logic. (.) Absent such a showing, the trial court reasonably concluded that the “Armando Munoz” debtor name in appellants' financing statement was seriously misleading. (.) “The secured party, not the debtor or uninvolved third parties, has the duty of insuring proper filing and indexing of the notice.” (

The states in pertinent part: “Subsection (b) contains the general rule: a financing statement that fails sufficiently to provide the debtor's name in accordance with Section 9-503(a) is seriously misleading as a matter of law.”

Naming Convention

Appellants contend that the debtor name requirement is governed by the naming convention of Latin American **871 countries because debtor is from Mexico. We reject the argument because the strawberries were planted in and the debt obligation arose in Santa Barbara County, not Mexico. “In most Latin American countries, the surname is formed by listing first the father's name, then the mother's name.... [T]his is exactly opposite Anglo-American tradition....” Debtor's last name did not change when he crossed the border into the United States. The “naming convention” is legally irrelevant for UCC-1 purposes and, if accepted, would seriously undermine the concept of lien perfection.

Appellants knew that debtor's legal name was “Armando Juarez” or “Armando Munoz Juarez.” Elodia Corona, appellants' account manager, prepared the UCC Financing Statements and testified: “I don't know why I didn't put his [i.e., debtor's] last name [on the UCC-1 financing statement]. I could have made a mistake....” Ms. Corona was asked: “So the last name on all the Agreements is Juarez, but on the Forms, you filed them as Munoz?” Ms. Corona answered, “Yes.”

*325 Conclusion

Appellants are estopped by their pleadings, the contracts, business records, the checks for the cash advances, debtor's identification papers and tax papers, and the testimony of appellants' account manager. Appellants could have protected themselves by using both names on their financing statements. (4 Witkin, Summary of California Law, supra, Secured Transactions in Personal Property, , sub. 7, at p. 640; .) The trial court did not err in finding that the UCC-1 financing statement filed by Frozsun Foods perfected a security interest superior to appellants' liens.

We point out the obvious: Had Frozsun Foods believed that the debtor's last name was Munoz and filed a UCC-1 under that name, it would have found the prior financing statement and would have had notice of the prior lien. It then could have made an informed business decision on whether to loan money to the strawberry farmer or not.

The judgment is affirmed. Frozsun Foods is awarded costs on appeal.

Case 29.2

171 Ohio App.3d 132, 869 N.E.2d 746, 62 UCC Rep.Serv.2d 595, 2007 -Ohio- 1940

Court of Appeals of Ohio, Tenth District, Franklin County.

HEARTLAND BANK, Appellant,

v.

NATIONAL CITY BANK et al., Appellees.

No. 06AP-93.

Decided April 24, 2007.

PETREE, Judge. {¶ 1} Plaintiff-appellant, Heartland Bank (“Heartland”), appeals from a judgment of the Franklin County Court of Common Pleas granting summary judgment in favor of defendant-appellee National City Bank (“National City”). For the reasons that follow, we affirm the judgment of the trial court. {¶ 2} The facts of this case are largely undisputed. Heartland is an Ohio banking corporation. National City is a national banking association with its principal place of business in Ohio. Hook & Motter, Inc., d.b.a. Dublin Auto Sales (“Dublin Auto”) was an automobile dealership that sold and leased automobiles to the general public. On or about November 29, 2000, Heartland entered an open-end-credit arrangement with Dublin Auto that was evidenced by a universal promissory note (“the note”). Pursuant to the terms of the note, Dublin Auto was able to borrow up to $300,000 from Heartland. In consideration for the open-end credit and to secure the note, Dublin Auto granted Heartland a security interest in all of Dublin Auto's inventory, including automobiles held by Dublin Auto for sale or lease. Heartland's security interest in the inventory of Dublin Auto was perfected by the filing of financing statements with the Ohio Secretary of State and the Franklin County Recorder. {¶ 3} On December 11, 2001, and pursuant to the arrangement between Heartland and Dublin Auto, Heartland advanced $9,000 to Dublin Auto for the purpose of enabling Dublin Auto to acquire a 1997 Ford F-150 (“F-150”). In view of the $9,000 advance, the certificate of title to the F-150 was physically delivered to Heartland. Heartland has maintained physical possession of the certificate of title since December 11, 2001. The certificate of title designated Dublin Auto as the owner of the motor vehicle. A notation was made on the certificate of title indicating that Heartland was the first lienholder on the motor vehicle. On March 12, 2002, Joe E. Murphy and Michael J. Murphy entered into an agreement with Dublin Auto to purchase the F-150 for a total price of $15,386.63. National City financed the Murphys' purchase of the F-150. Heartland did not receive any funds relating to that sale. On June 12, 2002, a certificate of title was issued designating “Michael J. Murphey” [sic] as the owner of the vehicle, Heartland as the previous owner, Heartland as the first lienholder, and National City as the second lienholder. {¶ 4} On February 28, 2002, and pursuant to the arrangement between Heartland and Dublin Auto, Heartland advanced $13,000 to Dublin Auto for the purpose of enabling Dublin Auto to acquire a 1999 Jeep Cherokee (“Jeep”). In view of the $13,000 advance, the certificate of title to the Jeep was physically delivered to Heartland. Heartland has maintained physical possession of the certificate of title since February 28, 2002. That certificate of title designated Dublin Auto as the owner of the Jeep, with Heartland as the lienholder. On March 7, 2002, Michael E. Laxton entered into an agreement with Dublin Auto to purchase the Jeep for a total price of $14,045. National City financed Mr. Laxton's purchase of the Jeep. Heartland did not receive any funds relating to that sale. On June 26, 2002, a certificate of title was issued designating Michael E. Laxton as the owner of the Jeep, Heartland as the previous owner, and Heartland as the first lienholder. {¶ 5} On July 14, 2003, Heartland filed a declaratory-judgment action in the trial court naming National City, Mr. Laxton, and the Murphys as defendants and seeking a declaration that it is the first lienholder on the two motor vehicles at issue in this case. On September 25, 2003, National City filed its answer to Heartland's complaint, as well as a counterclaim against Heartland. National City's counterclaim alleged that Heartland interfered with its contract rights to collect loan payments from its borrowers in connection with the motor vehicles at issue and sought a declaration that the motor vehicles at issue are not subject to any lien asserted by Heartland. On October 15, 2003, National City filed a cross-claim against Joe E. Murphy. {¶ 6} On March 18, 2004, National City filed a motion for summary judgment as to the declaratory-judgment causes of action in Heartland's complaint and National City's counterclaim. On April 9, 2004, Heartland filed its motion for summary judgment as to the declaratory-judgment causes of action in Heartland's complaint and National City's counterclaim. {¶ 7} On July 15, 2004, the trial court denied the summary-judgment motions of Heartland and National City. The trial court denied the motions on the basis that neither party had briefed the issue, which, in the trial court's view, was central to the case: whether Heartland had any right to retain possession of the certificates of title. {¶ 8} The final pretrial conference was held on September 2, 2004, and the parties agreed to attempt to resolve the matter by means of supplemental motions for summary judgment. Accordingly, on September 20, 2004, both Heartland and National City filed supplemental motions for summary judgment. {¶ 9} On October 20, 2004, Heartland and National City filed a stipulation of dismissal as to National City's counterclaim against Heartland for tortious interference with contract rights. {¶ 10} On August 5, 2005, the trial court issued a decision finding that Heartland's security interest in the two motor vehicles at issue was terminated upon the sale of the vehicles, based on its application of R.C. 1309.320 and 4505.13(B) to the facts of this case. Accordingly, the trial court denied Heartland's supplemental motion for summary judgment and granted National City's supplemental motion for summary judgment. Finding no just reason for delay, the trial court entered judgment on January 4, 2006. {¶ 11} Plaintiff timely appeals and sets forth the following four assignments of error for our review:

Assignment of Error Number One

The trial court erred by rendering summary judgment in favor of defendant-appellee National City Bank and against plaintiff-appellant Heartland Bank because there were no genuine issues of material fact and the evidence was of such a nature that reasonable minds could come to but one conclusion and that conclusion favored plaintiff-appellant Heartland Bank.