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Under Fla. Stat. § 679.2031 (2014) of Florida's Uniform Commercial Code (UCC), a security interest attaches and is enforceable against the debtor and third parties if 1) the secured party has given value; 2) the debtor has rights in the collateral; and 3) there is an authenticated security agreement that describes the collateral. Fla. Stat. § 679.2031 (2014). Fla. Stat. § 679.1081 governs sufficiency of descriptions of collateral for creation of a security interest; its requirement is clear: a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described. Fla. Stat. § 679.1081(1). With limited exceptions, a description reasonably identifies the collateral if it contains the UCC's defined categories, quantity, computational or allocational formulas or procedures, or any other method "if the identity of the collateral is objectively determinable."
Matthew Bruce Hintze and Larina K. Hintze (the "Debtors") delivered a promissory note in the principal amount of $375,000 to Christopher James, the Defendant, on November 10, 2010. The promissory note included the following language: "As security for the payment of the principal, interest and other sums due under this Note, Maker hereby grants to Holder a security interest in all of Maker's assets." About nineteen months later, on June 11, 2012, a UCC-1 Financing Statement was recorded with the Florida Secretary of State listing the Defendant as the secured party and the Debtors as the obligors. The financing statement described the collateral as: "All personal property owned by the Debtors, including cash or cash equivalents, stocks, bonds, mutual funds, certificates of deposit, household goods and furnishings, automobiles, and water craft." The Debtors filed their Chapter 7 petition on November 1, 2012. Before filing bankruptcy one of the Debtors, Matthew Hintze, was the Managing Member and owner of a business called TutoringZone, LC ("TZ I"). By agreement effective as of June 4, 2012, TZ I transferred its intellectual property to TutoringZone II, LLC ("TZ II"), an entity formed, and apparently owned, by the Defendant. The Debtors listed the Defendant on their Schedule D as a secured creditor with a "UCC-1 — Security Interest" on "[a]ll personal property of the Debtors." On their Amended Schedule B, in answer to question 13 they listed, among other things, "100% interest in TutoringZone, LC" as an asset. In September of 2013 the Trustee, here the Plaintiff, filed and served a notice of intent to sell the "[n]on-exempt equity" in "Debtors' 100% membership interest in TutoringZone, LC" for $10,000.00. Claiming a perfected security interest in this asset, the Defendant objected to the proposed sale and demanded the right to credit bid; he further complained that the Trustee had improperly rejected his $25,000 credit bid. In response, the Trustee objected to the Defendant's proof of claim. After the Defendant moved to strike the objection, claiming that the Trustee could only attempt to invalidate his security interest via an adversary proceeding, the Plaintiff commenced this action. The Plaintiff requested summary judgment declaring that the Defendant does not have a valid security interest in the Debtors' assets, including the 100% membership interest in TZ I. She alleged that under Florida law the collateral description of "all of Maker's assets" is legally insufficient to have created a security interest. The Defendant's response was that summary judgment is not appropriate because the intent of the parties governs, insisting that the Court must take parol evidence on the meaning of this collateral description. The Defendant also argued that the Plaintiff has stepped into the Debtors' shoes for purposes of this adversary proceeding, and so therefore has waived her right to challenge the validity of the security interest or, alternatively, is estopped from doing so.
Was the collateral description of "all of Maker's assets" sufficient to have created a security interest under Florida law?
The court held that a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described, Fla. Stat. § 679.1081. The description of "all of Maker's assets," in the promissory note, without more, was insufficient to create an enforceable security interest. There was no support for combining that language with a financing statement recorded nineteen months later. Without a sufficient description of the collateral, no valid security interest (or lien) was ever created. Since no lien was created, there was no lien to avoid. The Trustee's only course of action was to seek a declaratory judgment, which she did using her status under 11 U.S.C.S. § 544. The creditor had not met his burden of proving that the affirmative defenses of estoppel and waiver applied. There were no disputed material issues of law or fact.