CNH CAPITAL AMERICA LLC v. PROGRESO MATERIALS LTD, et al
(USDC – Southern District of Texas). October 25, 2012
Facts: This dispute arises out of the financing and two sales of some equipment--an Ahern Asphalt Plant and a Kawasaki Wheel Loader. CNH Capital America LLC (CNH) financed the purchase of both pieces of equipment by Progreso Materials, Ltd (Progreso). CNH contends that Progreso granted a security interest to CNH which CNH properly perfected.
Ultimately, the equipment was sold to Upper Valley Materials, LLC by Progreso. Upper Valley denies that CNH properly perfected a security interest in the equipment.
CNH seeks a declaration that Upper Valley's interest in the equipment is subordinate to CNH's security interest and CNH seeks to foreclose on the equipment.
As evidence of perfection, CNH presented a copy of the UCC-1 Financing Statement filed with the Texas Secretary of State showing Progreso as the debtor. On the financing statement, however, the letter “s” was omitted from the word “Materials” in the debtor name as listed.
At Issue: The Court first analyzed whether CNH had established that there was a security interest in the loader. Second, if there was a security interest in the loader, the Court would then determine whether CNH had established that it perfected that security interest. Finally, if the Court determined that there was an unperfected security interest in the loader, the Court would evaluate if CNH may, nevertheless, enforce its unperfected security interest against Upper Valley.
Decision: The Court decided that the UCC-1 Financing Statement did NOT perfect CNH’s interest in the equipment as the filing was deemed to be seriously misleading.
Correct Name of Debtor: Progreso Materials, Ltd.
Debtor Name on UCC-1: Progreso Material, Ltd.
A search of the Texas Secretary of State UCC database using the State’s search logic does not reveal CNH’s financing statement when the correct name is used. The Court reviewed the applicable portion of the Texas Administrative Code which establishes the standard search logic and was further persuaded that the omission of the "s" from “Materials” would have prevented a searcher using the standard search logic from discovering the financing statement if the searcher used Progreso's correct name.
The Court also went on to conclude that although CNH might prevail in enforcing its unperfected lien if Upper Valley (the Buyer) had actual knowledge of the lien, CNH did not demonstrate that it perfected a security interest in the loader or that Upper Valley had actual knowledge of the security interest. As such, CNH may not foreclose on the loader at this time.