Frankel v. Associates Financial Services Co.

Singley, J., delivered the opinion of the Court. This case, which reaches us under a certification of questions of law by the United States District Court for the District of Maryland, poses two questions, which we shall edit minimally in the interest of clarity: 1 ¹⁷⁴ 1. Did the security interest created by the Wholesale Security Agreement (the Agreement) dated 10 June 1970 between Prince George’s Truck Center (the Truck Center) and Associates Financial Services Company, Inc. (Financial Services) attach to that property repossessed by Financial Services on 18 February 1975, which property was acquired by the Truck Center after the Agreement was executed? 2. Where financing statements were properly filed in the local circuit court prior to the 1971 amendment to Maryland Code (1957, 1964 Repl.

Vol.) Art. 95B, § 9-401 2 changing the requirements regarding place of filing, did the filing of a superfluous subsequent financing statement or a modification statement in the local circuit court in November, 1973, rather than with the State Department of Assessments and Taxation adversely affect any prior perfection of the security interest? For reasons to be stated, we propose to answer the first question in the affirmative, and the second, in the negative. The Facts On 10 June 1970, the Truck Center entered into an Agreement with Financial Services under which Financial Services was granted “a security interest and security title under the Uniform Commercial Code in all of [its] collateral and in all proceeds thereof whether or not identifiable, and the value thereof (hereinafter collectively called ‘proceeds’), to secure the payment of all Floor Plan Advances” which Financial Services might make to the Truck Center. A Financing Statement was recorded on 12 June 1970 in the office of the clerk of the Circuit Court for Prince George’s County, specifying that the Statement covered “new and used motor vehicles, chattel paper” and “all proceeds of the property . . . including but not limited to ¹⁷⁵ proceeds of sale of all motor vehicles covered by this statement, including money, accounts receivable, chattel paper and motor vehicles received in trade.” Thereafter, on 14 January 1971 and on 12 November 1973, substantially similar Financing Statements were filed in the office of the clerk of the circuit court.

On 17 June 1975, the Truck Center was adjudicated a bankrupt by the United States District Court for the District of Maryland. On 18 February 1975, the Truck Center had turned over to Financial Services 19 trucks, purchased in 1974 with funds advanced by Financial Services, which had not been repaid prior to 18 February 1975. Roger Frankel, trustee in bankruptcy of the Truck Center, sought to recover the trucks on the theory that this transfer was a voidable preference under § 60 of the Bankruptcy Act, 11 U.S.C. § 96 (1964). Financial Services sought a summary judgment on the ground that it had a perfected security interest in each of the trucks which had existed for more than four months prior to the date of the bankruptcy.

The trustee posits his argument on two contentions: first, that the Agreement gave Financial Services no security interest in trucks acquired after the date of the Agreement; and second, that because what is now Code (1975) § 9-401 of the Commercial Law Article had been amended effective 1 July 1971 so as to require filing of certain financing statements with the State Department of Assessments and Taxation, what the trustee regards as the improper filing of the 12 November 1973 Financing Statement invalidated the filings made prior to 1 July 1971. The Law We are quite satisfied that Financial Services has the better of both arguments. Code (1975) § 9-204 (3) of the Commercial Law Article recognizes the validity of a “floating lien,” i.e., that the parties may agree that “collateral, whenever acquired, shall secure all obligations covered by the security agreement.” While the Agreement in this case may not have been artfully prepared, it must be read in the light of the trade customs followed in floor ¹⁷⁶ planning — the notion that the lien will extend to the dealer’s inventory as it may be constituted from time to time. Indeed, this is precisely what § 9-204 (3) contemplates. 3 While In re Middle Atlantic Stud Welding Co., 503 F. 2d 1133 (3d Cir. 1974) supports the trustee’s position, we regard In re Fibre Glass Boat Corp., 324 F. Supp. 1054 (S.D. Fla.), aff'd, 448 F. 2d 781 (5th Cir. 1971); In re Nickerson & Nickerson, Inc., 329 F. Supp. 93 (D. Neb.), aff'd, 452 F. 2d 56 (8th Cir. 1971); In re Page, 16 U.C.C. Rep.

Ser. 501 (Paskay, J., M.D. Fla. 1974), and Biggins v. Southwest Bank, 490 F. 2d 1304 (9th Cir. 1973), as the better reasoned and propose to follow