Sufficiency of Financing Statement
Value-Added Communications, Inc. v. CLC Equipment Co., 139 F.3d 543 (5th Cir. 5/6/98). SUFFICIENCY OF FINANCING STATEMENT. This case teaches an important lesson. If you draft a financing statements which is specific, be sure to include all of the collateral in the description therein. In the case at bar, plaintiff leased telephone processing equipment to debtor. Debtor used that equipment to operate a telephone system for inmates in the state of Minnesota and collected approximately $180,000 from inmates who used the phone system. Plaintiff took a valid security interest in the equipment and in all of Lessee's contract rights in Site Leases, to receipts pursuant to Site Leases, and to the proceeds, products, additions, etc. of the Site Leases.
Debtor filed for bankruptcy and plaintiff demanded the $180,000 as a security interest. The problem was that the financing statement filed by plaintiff, described the collateral as "all equipment and other personal property and all modifications . . .," but made no mention of the Site Leases. Since a financing statement must reasonably describe the collateral that is covered by the security interest, so that a subsequent creditor would reasonably make further inquiry, the statement's failure to even mention the Site Leases prevented plaintiff from asserting his security interest in Bankruptcy with respect to the collateral in question. The court noted that "[plaintiff] drafted the financing statement and chose to describe the collateral in more detail than was required. [Plaintiff's] narrow description excluded the Site Leases [and plaintiff] must live with the consequences of the collateral description it drafted."