This is an action by a bankruptcy trustee to invalidate an ex-husband's security interest in franchise agreements and other corporate assets. I find for the trustee.

Factual Background

        David Murray (David) and Debra Murray (Debby) married in Yakima, Washington in 1976. David, a certified public accountant, became interested in Nutri/System weight loss franchises in Alaska. He and Debby moved to Alaska and established The Health Corporation (THC or Debtor) as an Alaskan entity to operate weight loss centers in Fairbanks, Anchorage and other locales throughout the state. In 1981 the corporate headquarters were located in Anchorage, but they were subsequently moved to Soldotna in April of 1986. At one time     2 ABR 104  the corporation had six centers statewide. Unprofitable centers were closed and three remained in 1986.

        David was charged criminally with cocaine possession in 1985. He moved to Bainbridge Island, outside of Seattle, with Debby and their family in June of 1986. David delegated day to day management of the corporation to Mark Azzara in Soldotna. David remained in contact with Azzara while in Washington on a daily basis. He directed corporate affairs until his imprisonment in September of 1986. Debby filed for divorce in January of 1987. David was released from prison the following month. Shortly after his release, Debby was awarded "full control, and authority to run, manage and direct the family business, The Health Corporation . . ." by a Seattle divorce court.

        Debby returned to Yakima in February of 1987 where she oversaw the company and pursued other interests in a corporation known as PM Productions. Mark Azzara resigned in May of 1987. His primary duties were assigned to Paulette Moore in Fairbanks. Moore became a vice-president. Some of Azzaras administrative functions were transferred to Susan Wilkes in Soldotna, who was designated as administrative supervisor. As administrative supervisor, Wilkes oversaw the books and ordered food for the centers.

        In June of 1988, the administrative functions of the Soldotna office were terminated. These functions along with the corporate computer were moved to Yakima, Washington and Melanie     2 ABR 105  Stilley became administrative supervisor. Her functions were primarily bookkeeping in nature. Offices were leased in Yakima. Paulette Moore continued to run the Alaskan operations in Fairbanks but reported to Debby in Yakima for all major policy decisions.

        David and Debby reached a property settlement agreement in October of 1988. David was to be paid $130,000.00 from THC for his interest in it. He was to receive a security interest in all corporate assets, including the Nutri/System franchises. A financing statement was filed in Washington on October 12, 1988.

        In August of 1989 Paulette Moore and other employees of THC's Alaskan operations walked out. Nutri/System declared its franchise in default. Debby moved from Yakima to Anchorage "temporarily" to address the problems. She was to be in Anchorage for approximately one year. The move became permanent, however. Melanie moved to Anchorage to assist Debby in March of 1990. Some accounting functions remained in Yakima where Debby's mother oversaw them.

        About ten months after Debby's return to Anchorage, on June 19, 1990 David Murray filed a UCC-1 in Alaska. THC filed chapter 11 on August 31, 1990, and totally closed its Yakima office in March of 1991. It has since converted to chapter 7.

Trustee's Arguments

        The trustee contends that David failed to perfect his security interest in THC's assets based on the following:

       1)  The financing statement does not conform with the requirements of the Uniform Commercial Code;

       2)  A valid security agreement does not exist; and

       3)  David's security interest is invalid because he failed to properly file a UCC-l in the state where THC maintained its chief executive office.

        The trustee also contends that David's Alaskan UCC filing is voidable as a preference.

        Each of the contentions is discussed separately below.

Defects in Financing Statement

        The trustee first argues that the Debtor's financing statement failed to conform to the requirements of § 9-402 of the Uniform Commercial Code regarding financing statements. § 9-402, codified as RCW 62A.9-402, provides in part:

(1)  A financing statement is sufficient if it gives the names of the debtor and the secured party, is signed by the debtor, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral . . .

(7)  A financing statement sufficiently shows the name of the debtor if it gives the     2 ABR 107  individual, partnership or corporate name of the debtor, whether or not it adds other trade names or the names of partners . . .

(8)   A financing statement substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading.

        The financing statement filed in Washington listed the Debtor as "Debra Lynn Murray" with a trade name of "The Health Corporation". Debby's attorney's address was given and the statement referred to an exhibit which gave a detailed listing of the collateral. A copy of the financing statement is annexed to this opinion. ^(a) The financing statement was signed by Debra Murray without listing her corporate office.

        One of the policies of Article 9, noted with approval by Chief Judge Wallace in Siljeg v. National Bank of Commerce of Seattle, 509 F.2d 1009, 1012 (9th Cir. 1975) is "to discourage the fanatical and impossibly refined reading of . . . statutory requirements in which courts have occasionally indulged themselves." Uniform Commercial Code § 9-402, Comment 5 (1962). To this end, § 9-402(8) of the Code was adopted which allows minor errors.

        Here the Debtor's name was incorrectly listed. However, "The Health Corporation" was listed as a trade name. I find that the financing statement sufficiently shows the name of the Debtor. Due to the inclusion of the trade name, a Washington search reveals David's financing statement. I concur with White & Summers who state:

    2 ABR 108          What if the name of the debtor on the financing statement is incorrect but the financing officer correctly indexes the financing statement under the correct name of the debtor? Here, 9-402(8) surely applies. It says that a financing statement "substantially complying with requirements of this section is effective even though it contains minor errors which are not seriously misleading." And there are cases holding that a correctly indexed financing statement is effective even though it includes an incorrect name of the debtor. Presumably correct indexing under the debtor's true name would even save a financing statement with an otherwise highly misleading name on it, for the searcher would be put on notice by the actual indexing and thus not be mislead. (footnotes omitted)

2 J. White & R. Summers, Uniform Commercial Code, page 374 (3rd Ed. 1988)

        This situation differs from In re McCauley's Reprographics, Inc., 638 F.2d 117 (9th Cir. 1981), where a partnership filing was ineffective against a subsequent corporation of the same name, because THC's corporate identity is disclosed on the financing statement.

        The Debtor's address is also incorrectly listed as:

       

c/o Carol Hepburn
Reaugh, Mischnaller and Oettinger
3000 Wostin Bldg.
Seattle, WA 98121

Again, I concur with White & Summers:

Mistakes in that part of the address which do not involve the party's name have caused much less difficulty for the courts than has the name controversy above. Where the financing     2 ABR 109  statement contains any sort of an address by which a credit searcher can contact the party in question, courts hold the financing statement effective.

        The trustee argues that Debby signed the financing statement as an individual and not in a corporate capacity. I view her failure to put "president" by her signature as a minor defect which was not substantially misleading due to the inclusion of the corporation's name on the face of the financing statement and in the description of assets annexed to the statement.

        Finally, the trustee argues that the description of the collateral in the financing statement is inadequate. However, attached to the statement is a lengthy list of collateral. "The Health Corporation Franchise Agreement" is listed. In fact, THC had three franchise agreements with Nutri/System: one for the Kenai peninsula, one for Fairbanks and one for Anchorage. The financing statement failed to note the plural agreements. I view this as a minor defect under § 9-402(8). A reasonably diligent searcher would be on notice of a security interest in a THC franchise agreement. He would be forced to make further inquiry to determine the total extent of such security interest and whether a particular franchise agreement was covered. As pointed out by White & Summers:

The theory of notice filing is that a reasonable diligent searcher will be put on     2 ABR 110  notice not only of a security interest but also on notice of what collateral is covered by the security agreement. Thus, no reported case upholds total omission of a description from the financing statement. Such a financing statement fails in one of its fundamental notice functions. Of course, where the financing statement includes a valid description, it does not follow necessarily that the collateral described are in fact subject to a security interest. Further inquiry is usually necessary.

Security Agreement

RCW 62A.9-203(l) provides in part:

(1) [A] security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless:

        (a)  the collateral is in the possession of the secured party pursuant to agreement, or the debtor has signed a security agreement which contains a description of the collateral . . .

            2 ABR 111  The separation contract and property settlement agreement of the parties, at pages 22 - 23, awarded David:

(b) A five (5) year promissory note from The Health Corporation payable in the amount of $130,000.00, payable pursuant to the terms of the promissory note attached hereto as exhibit "A" and by this reference fully incorporated herein which will be secured by the assets of The Health Corporation as well as the personal collections guarantee of the Petitioner.

SECURITY OF PROMISSORY NOTE. A UCC-1 has been executed by Maker to Holder of even date hereof which is attached hereto as Exhibit "A" by this reference fully incorporated herein.

        I adopt the reasoning of the Ninth Circuit in In re Amex-Protein Development Cory3oration, 504 F.2d 1056 (9th Cir. 1974) and find the combination of instruments here constitutes a valid security agreement. Per Amex, there is abundant language leading to the conclusion that the parties intended to create a security interest. The divorce agreement, the promissory note and the financing statement, when read together, show an unambiguous attempt to create a security interest. Moreover, Debby's actions were ratified by the corporation. The parties intended to, and did create, a valid security agreement.

Corporate Location

        In June of 1988, Debby moved certain corporate functions to Yakima, Washington. This invoked the multi-state provisions of the Uniform Commercial Code found in § 9-103, codified as A.S.45.09.103. Subsection (c) applies to general intangibles (the franchise agreements), accounts and mobile goods. Pertinent subsections of (c) provide:

        (1)   The law (including the conflict of laws rules) of the jurisdiction in which the debtor is located governs the perfection and the effect of perfection or nonperfection of the security interest.
. . .

        (3)   A debtor shall be considered located at the debtor's place of business if the debtor has one, at the debtor's chief executive office if the debtor has more than one place of business, or otherwise at the debtor s residence.
. . .

(4)   A security interest perfected under the law of the jurisdiction of the location of the debtor is perfected until the expiration of four months after a change of the debtor's location to another jurisdiction, or until perfection would have ceased by the law of the first jurisdiction, whichever period first expires. Unless perfected in the new jurisdiction before the end of that period, the security interest becomes unperfected thereafter and is considered to have been unperfected as against a person who becomes a purchaser after the change.

The Debtor had more than one place of business. It had three Alaska locations and one Washington location in 1988. Therefore,     2 ABR 113  the chief executive office of the corporation must be determined at two critical junctures: (1) the date of David's Washington UCC filing, October 12, 1988; (2) the date Debby returned to Alaska in late August 1989. If the chief executive office was in Alaska at either time, David's security interest fails because it was not perfected in a timely manner.

        To determine the "chief executive office", I adopt the 8 factors utilized in In re Metro Communications, 95 B.R. 921, 927-928 (Bankr. W.D. Pa. 1989). They are:

(1)	existence of office autonomy;
(2)	location of officers and directors;
(3)	office from which the annual report is generated;
(4)	location of financial records, including bookkeeping functions, tax preparation and maintenance of payroll;
(5)	office from which business is negotiated and contracts are executed;
(6)	location which generates greatest revenues;
(7)	area in which majority of debtor's creditors are located; and
(8)	location from which primary accounting and legal services are rendered.

Applying these factors to THC as of October 12, 1988 reveals the following.

        The Debtor's Alaskan operations were not autonomous. They needed the accounting functions provided by the company's Yakima office. Additionally, food ordering from Nutri/Systexn was made from the company's Yakima office. Bookkeeping and payroll functions were performed in Yakima.

        The corporate officers' location was fractured. Effectively, the Debtor had but two officers: Debby Murray and Paulette Moore in October of 1988. Debby Murray was president of the corporation as well as secretary-treasurer. Paulette served as vice-president of operations in Fairbanks but took occasional trips to Yakima. Debby did not run the day to day operations of the company, but could veto Paulette's decisions. She had the ultimate voice in corporate management. She spent a substantial amount of her time traveling or working on PM Productions, a separate corporation, however. As Debby and Paulette were the two primary officers of the corporation, and each was officed in a separate state, the principal location of corporate officers was neither Washington nor Alaska. Debby was the sole director.

        The corporation did not generate an annual report such as envisioned in most publicly held corporations. Therefore application of this test is inappropriate.

        All major financial records were kept in Yakima. However, no Nutri/System business was accomplished in Yakima on a retail basis. All public business was transacted in Alaska. All the revenues were generated in Alaska and by far the majority of creditors were located in Alaska. ⁽¹⁾ Accounting functions, however, were performed exclusively through the Debtor's Yakima office.

        A review of the categories on October 12, 1988, is inconclusive. The categories are nearly evenly balanced. As this was a small business corporation and Debby had ultimate control of the corporation, as its sole shareholder, president, secretary-treasurer and director, I find that as of October 12, 1988 the Debtor's chief executive office was in Yakima, Washington. I afford the location of the corporation's president greater weight than the other factors.

        This situation changed dramatically, however, following the mass resignation of Alaskan THC employees in August of 1989. Debby was then forced to return to Alaska to actively manage the Debtor's day to day operations. While Debby characterized this move as "temporary" in custody proceedings, her characterization was incorrect. The move became permanent.

        When Debby moved, she returned to Alaska with an intent to stay for at least a nine month period. Paulette Moore, the vice president who had previously run day to day Alaskan operations, left along with other center managers. There was a power vacuum and Debby's Alaskan responsibilities increased substantially. Although Yakima remained a source for bookkeeping functions and ordering food, Alaska was the site of the chief executive. Melanie Stilley was designated as vice-president, but her function as a bookkeeper and payroll clerk in Yakima did not change.

        David vigorously emphasizes the "temporary" nature of this move. While the move was characterized as "temporary" in     2 ABR 116  custody proceedings, the fact remains that Debby moved to Alaska for at least the school year beginning in 1989. When she moved she effectively changed the chief executive office of this small business corporation. Yakima could no longer be the chief executive office without the presence of THC's chief executive officer.

        David's argument misses the point. The move, while very significant, went hand in hand with a change of Debby's function. The Alaskan officers had resigned. She assumed their jobs. Debby was no longer a distant supervisor, she was actively running the company's everyday operations. She became the director, president, secretary-treasurer and shareholder who totally administered the company. It is this change of location and function that required David to file a UCC-l financing statement within 120 days.

        My conclusion is buttressed by the official comments to section 9-103 of the Uniform Commercial Code.

"Chief executive office" does not mean the place of incorporation; it means the place from which in fact the debtor manages the main part of its business operations. This is the place where persons dealing with the debtor would normally look for credit information.

Preference

        David Murray's Alaskan filing of June 19, 1990 was a transfer on account of an antecedent debt made while the Debtor was insolvent, within 90 days of the petition. Prior to June 19, 1990, David was an unsecured creditor on the Debtor's Alaskan assets. After June 19, 1990 he became secured. The transfer enabled David to receive the proceeds of valuable franchises and other accounts which he would otherwise be forced to share with some $320,000.00 of unsecured claims listed in the Debtor's schedules, after deduction of approximately $103,000.00 in priority federal taxes, as well as payment of administrative expenses. While the parties have submitted no evidence in regard to the mathematics of the preference claim, the court, by taking judicial knowledge of the Debtor's schedules on file in the main case, finds that the transfer clearly enables David to obtain more than he would have obtained in chapter 7. In accordance with 11 U.S.C. § 547, the transfer constitutes a preference.

Miscellaneous Property

        The parties have not definitively addressed the location of the miscellaneous goods listed in Exhibit "A" to the financial statement (other than accounts, general intangibles and mobile goods) as they are of nominal value. Pursuant to A.S.45.09.103(a), goods which either remained exclusively in the State of Washington     2 ABR 118  after David's October 12, 1988 filing or were transferred to Alaska from Washington after February 19, 1990 remain subject to David's lien.

Conclusion

        The security documents in Washington were sloppily drafted. Nevertheless, they constituted a valid financing statement and security agreement. David's interests could easily have been protected by simply filing UCC-ls both in Alaska and Washington in October of 1988. No financing statement was filed in Alaska, however, until the eve of bankruptcy. Due to this delay, the security interest David obtained must be invalidated.

        Therefore, IT IS HEREBY ORDERED:

        1. The lien of David S. Murray on any and all assets of the Health Corporation specifically including the Health Corporation franchise agreements with Nutri/System, Inc. is hereby avoided in accordance with 11 U.S.C. § 547, except to the extent that The Health Corporation had A.S. 45.09.103(a) goods which remained exclusively in Washington after October 12, 1988 or were transferred from Washington to Alaska on or after February 19, 1990; and

        2. Each party shall bear their own costs and attorney's fees.

        Judgment shall be entered and docketed in accordance with this decision.

        DATED:   September 20, 1991.

BY THE COURT




DONALD MacDONALD IV
United States Bankruptcy Judge

    2 ABR 114  1.    According to the Debtor's schedules, approximately 85% of its 190 creditors were in Alaska on the petition date of August 31, 1990.

a.     N O T E:

2 ABR 120      2 ABR 121  The printed edition of Alaska Bankruptcy Reports contains an attachment for this decision. The attachment's quality is too poor to be imaged. Please consult the case file (curently archived in Seattle, WA.) for this attachment.