Cengage Advantage Books: Fundamentals of Business Law Today 10th Edition by Roger LeRoy Miller

Exercise 17

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 listed 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 of what the Bakers owed her.
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 financing statement-and the diagrams on the certificates. The Bakers later filed for bankruptcy. In court, the trustee argued that Angell had not perfected her security interest because the financing statement did not describe the cows in sufficient detail.
ISSUE Did Angell's financing statement describe the cows in enough detail for Angell to perfect her security interest?
DECISION Yes. The bankruptcy court determined that Angell had perfected her security interest and was entitled to the proceeds from the auction.
REASON UCC Section 9-108 provides that a description of the collateral "is sufficient … if it reasonably identifies what is described" in a way that makes it "objectively determinable." A financing statement, the court noted, need only provide "notice that a person may have a security interest." Once a third party has such notice, he or she is obligated to inquire further to determine which specific property is covered.
In this case, Angell's financing statement provided notice that Angell might have a security interest in the cows. Although the financing statement contained incorrect ear tag identification numbers, a third party could have reasonably identified the cows using their names and the diagrams on their certificates of registration. In fact, the auction company did precisely that. Thus, Angell's financing statement had reasonably identified the cows and perfected her security interest.
FOR CRITICAL ANALYSIS -Legal Consideration Do the UCC's rules concerning collateral descriptions encourage parties to enter into security agreements? Why or why not?