In re CSY Yacht Corporation

CSY Yacht Corporation (CSY) (debtor), a manufacturer and seller of yachts, entered into a contract with the Jaegars (creditors) to construct a large yacht for them. The total purchase price of the yacht was $176,111. A purchase agreement was signed, and the Jaegers made three payments toward the yacht, for $1,000, $4,000, and $35,000. Subsequently, CSY, amid financial turmoil, decided to halt construction of new yachts, and eventually CSY filed for Chapter 11 bankruptcy. CSY completed the yachts that were in the process of being built, but it never began construction on the Jaegars’ yacht. CSY then sold the inventory that it did not need. The Jaegars did not file a claim asserting a secured position until after a sale was conducted. The Jaegars never obtained a security agreement, nor did they file a financing statement to perfect a security interest under Article 9 of the Uniform Commercial Code (UCC). Instead, the Jaegars relied on language in their purchase agreement, which provided that all of the materials and equipment attached to the boat or designated for use on the boat would become the property of the purchaser upon payment of the first installment. This language, the Jaegars contended, created a special property interest in the materials and equipment under Florida Statute § 672.501. CSY did not object to the claim being filed as a priority claim, but CSY did object to the claim being filed as secured.