Borg-Warner Acceptance Corp. v. Bank of Marin

Opinion

DEVINE, P. J.

The lawsuit which produces this appeal is a contest between two institutions which financed' a retail boat dealer. Defendant bank is charged by plaintiff with conversion of collateral in which plaintiff had a security interest. Damages in the sum of $9,881.74 are alleged to have resulted. Trial was without a jury. Judgment was rendered for defendant bank, the trial judge having decided that the bank's security interest had been perfected prior to that of plaintiff. Plaintiff appeals.

Commencing in May 1967, the Bank of Marin entered into written security agreements with two partners, Gary and William Muggenthaler, doing business as Loch Lomond Boat Shop and Loch Lomond Yacht Sales (hereafter “the dealer”). On May 9, 1967, the bank filed with the Secretary of State of the State of California a financing statement (UCC-1) covering “all inventory, including but not limited to boats, motors, boat trailers and accessories whether now owned or hereafter acquired.” The UCC-1 filing showed the individual Muggenthalers as debtors and listed as a trade name in the appropriate section of the form “Loch Lomond Boat Shop and Loch Lomond Yacht Sales.”

[288]

Approximately one year later, on June 13, 1968, the dealer incorporated its business as Loch Lomond Yacht Sales, Inc. The bank continued to finance the inventory for the new corporation. Although there is no specific finding on the subject, it appears to be undisputed that the bank knew of the incorporation. On November 14, 1969, Borg-Warner Acceptance Corporation, a finance company, agreed to finance certain inventory of the dealer, and on December 19, 1969, filed a UCC-1 financing statement naming “Loch Lomond Yacht Sales,

Inc.”

(italics added) as the debtor.

Default occurred as to contracts with both of the financing institutions. The debt to the bank far exceeded the amount of the value of the inventory of the dealer which the bank took possession of and sold, applying the proceeds toward the obligation. The trial court found and concluded that the bank perfected its security interest in the dealer’s inventory on May 9, 1967, when it filed its first UCC-1. Borg-Warner perfected its security interest when it filed its UCC-1 on December 19, 1969. Under the “first to file” rule, the bank had priority, and plaintiff was put on notice of the bank’s prior security interest. The failure to list “Loch Lomond Yacht Sales, Inc.” was not seriously misleading to plaintiff.