Reference no: EM132198965

In re Greenbelt Cooperative, Inc., 124 Bankr. 465 (1991), concerned the voidability of a lien placed on forklifts leased to Greenbelt Cooperative, a retail furniture business that did business under the trade name SCAN, a fact well known to consumers. A month after leasing the forklifts to Greenbelt, Raymond Leasing Corp., the lessor, filed a financing statement in the correct place, listing “Scan Furniture” as the debtor. Over a year later, Greenbelt filed for bankruptcy, and the bankruptcy trustee moved to avoid Raymond’s security interest in the equipment because the legal name of the debtor (Greenbelt) wasn’t listed on the financing statement. The bankruptcy court agreed with the trustee, concluding that a financing statement should list the legal name of the debtor or a name substantially similar to the legal name, so that it would not mislead a reasonably diligent creditor searching the financing records. A creditor should only be required to search under the legal name of a debtor obtain notice of a security interest or to be put on notice to inquire further. Therefore, the court voided Raymond’s lien on the Equipment. Please answer the following questions: (i) Should creditors searching financing records be required to search for financing statements filed under the debtor’s trade names as well as its legal name? ii) Did the bankruptcy trustee act ethically in avoiding the secured creditor’s security interest? (iii) Was the filing of the financing statement under the wrong name an error that could have easily been prevented?