Reference no: EM132244542

BaCKground and faCtS In 2006, Jeanne Angell sold fifty-eight dairy cows to Richard and Amanda Baker. Angell gave the Bakers a certificate of registration for each cow. Each certificate gave the cow’s name, provided a diagram with the animal’s distinctive markings, and identified Angell as a former owner. In 2008, the parties executed a security agreement, and Angell attempted to perfect her security interest by filing a financing statement. Both documents identified the cows by name and by their ear tag identification numbers. The Bakers then sold twenty-two of the cows at auction, and Angell was entitled to the proceeds because they still owed her for the cows. Sixteen of the cows, however, either did not have ear tags or had tag numbers that did not match the financing statement. The auction company therefore identified the cows using their names, which appeared on both the certificates and the financ- ing statement, and the diagrams on the certificates. The Bakers later filed for bankruptcy. The bankruptcy trustee argued that Angell had not perfected her security interest because the financing statement did not describe the cows in sufficient detail. in the LanGUaGe OF the COUrt Diane DAVIS, Bankruptcy Judge. **** Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CASE 30.1 CONTINUEd * * * Uniform Commercial Code Section 9–108 * * * states that a “description of per- sonal * * * property is sufficient, whether or not it is specific, it if reasonably identifies what is described” such that the “identity of the collateral is objectively determinable.” * * * “Generally, a financing statement sufficiently indicates collateral claimed to be covered by [the statement] * * * if it provides notice that a person may have a security interest in the collateral claimed.” Thus, the theory underpinning the financing statement is one of inquiry notice, and the test is one of reasonable identification, which this Court must now construe in practice. [Emphasis added.] **** “A financing statement imposes a duty on third parties to inquire of the parties concerned to learn the identity of specific property covered, and thus to charge the third party with knowledge of whatever facts a reasonable inquiry would have revealed.” Trustee submits that the collateral in this case was described with such particularity that no further inquiry would have been required of a third party. Given the character of the collateral at issue and the almost certain loss of ear tags, the Court is unconvinced. At a minimum, the third party would have been placed on notice that Defendant claimed a security interest in a certain number of cows. Cows are not fungible; they are identifiable by a number of methods, including ear tag designation, breed, lot number, brand, unique permanent markings, and/or registration certificate. While Defendant’s use of the ear tag identification numbers was, as of the time of filing, inaccurate, both the Certificates and the [financing statement] included the name of each cow in addition to an ear tag designation. Given this information, [the Bakers], Defendant, and/or a third party would have been able to readily and easily ascertain which cows were covered by Defendant’s security interest. [The auction company], with the aid of the Certificates, did just that by comparing the names on the [financing statement] to the names and diagrams on the respective Certificate for each cow. Accordingly, Defendant’s [financing statement] was effec- tive to perfect Defendant’s secured interest in the sixteen cows, irrespective of the erroneous or outdated ear tag designations.

DeCiSion and remedy The bankruptcy court determined that Angell was entitled to the pro- ceeds from the auction. It held that the trustee could not invalidate Angell’s security interest. the legal environment dimension Do the UCC’s rules concerning collateral descriptions encourage parties to enter security agreements? Why or why not? What if the faCtS Were different? Suppose that Angell had listed only the cows’ names and not their ear-tag designations. Would the result have been different? Explain.