Bank of W. v. Commercial Credit Fin. Servs., Inc. - 852 F.2d 1162 (9th Cir. 1988)

Rule:

A debtor cannot destroy the perfected security interest of a secured party by merely changing its name or corporate structure. Debtor cannot destroy a perfected security interest by transferring title to collateral or changing its name or corporate structure, and the validity of the lien against subsequently acquired assets as well as those presently owned is effective thereagainst.

Facts:

Defendant had a perfected security interest in accounts owned by debtor subsidiary corporation. All of debtor's subsidiary corporation's assets were transferred to a related subsidiary company. Plaintiff had a perfected security interest in collateral owned by the related subsidiary company, including its accounts. Defendant retained accounts that were transferred to the related subsidiary company, and plaintiff filed suit to recover the accounts. The trial court found for plaintiff, and both parties appealed.

Issue:

Under the circumstances, did the plaintiff’s security interest in the collateral have priority over the defendant’s?

Answer:

No.

Conclusion:

The Court held defendant's security interest in the collateral remained perfected after the transfer to the related subsidiary company, pursuant to Cal. Com. Code § 9402(7), since the inter-corporate transfer was merely a change of structure in defendant's debtor corporation. However, defendant's financing statement only protected new accounts acquired within four months after the transfer to the related subsidiary company. Since plaintiff's debtor's interest in the collateral was subject to defendant's perfected security interest in it, and plaintiff could not have greater rights in the collateral than its debtor, plaintiff's interest was subordinate to defendant's interest.