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Grabowski v. Deere & Co. (In re Grabowski) - 277 B.R. 388 (Bankr. S.D. Ill. 2002)

Rule:

In the case of a financing statement, a creditor may either describe its collateral by "type" or "category" as set forth in 810 Ill. Comp. Stat. 5/9-108 or may simply indicate its lien on "all assets" of the debtor. This exceedingly general standard for describing collateral in a financing statement is consistent with the "inquiry notice" function of a financing statement under previous law. A financing statement need not specify the property encumbered by a secured party's lien, but need merely notify subsequent creditors that a lien may exist and that further inquiry is necessary to disclose the complete state of affairs.

Facts:

In April 2001, debtors Ronald and Trenna Grabowski of Dubois, Illinois, filed a Chapter 11 proceeding to reorganize their farming operation in Washington and Perry counties in Illinois. The debtors' schedules included a list of items of equipment used in their farming operation. The debtors filed an action in court to determine the validity, priority, and extent of liens held by various lenders in this equipment. Bank of America claimed a prior security interest in the equipment by virtue of a security agreement signed by the debtors in December 1998. In 2000, South Pointe subsequently obtained a lien on the debtors' equipment. Both lenders, Bank of America and South Pointe Bank, filed financing statements. Bank of America, the first to file, described its collateral in general terms and listed the debtors' business address, rather than their home address where the collateral was located. South Pointe, by contrast, described the collateral more specifically and included the debtors' home address. South Pointe contended that Bank of America's description was ineffective to perfect the Bank's security interest in the equipment and that South Pointe has a superior interest by reason of its subsequently filed financing statement.

Issue:

Does South Pointe have a superior interest over the debtors’ equipment on the basis of the alleged ineffectiveness of Bank of America’s financing statement?

Answer:

No.

Conclusion:

The court found no merit in South Pointe’s argument that the description of Bank of America’s collateral was too general to fulfill the notice function of a financing statement under the Uniform Commercial Code. The court held that despite the generality of Bank of America’s description, it was sufficient to notify subsequent creditors that a lien existed on the debtors' property and that further inquiry was necessary to determine the extent of the lien. Moreover, the debtors' business, address was not part of the lender's description of its collateral and, thus, did not serve to limit the collateral subject to the lien. Lastly, the court ruled that the financing statement listed the names of the debtors and not the name of the debtors' business.

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