In re Equitable Financial Management, Inc.
United States Bankruptcy Court for the Western District of Pennsylvania
164 Bankr. 53, 1994 Bankr. LEXIS 188 (1994)

- Written by Katrina Sumner, JD
Facts
Equitable Financial Management, Inc. (Equitable) (debtor) was a business that leased equipment. Equitable’s practice was to enter into a lease with a lessee for equipment, then secure the financing from Colonial Pacific Leasing Company (Colonial) (creditor) to buy the equipment leased. Equitable and a lessee would execute a lease agreement and an equipment schedule. Together, these executed documents formed chattel paper that Equitable gave to Colonial so that Colonial could perfect its interest in both the leases and the equipment by possession of the original chattel paper, rather than by filing a financing statement. In 1990 Equitable entered into lease agreements with Eachles & Associates, Inc. (Eachles) and Coors/RMS (Coors). Equitable followed its normal practice above, except that it kept some preliminary documents related to the leases for Eachles and Coors. The documents were either preliminary drafts of the leases or equipment schedules that were not signed by Equitable or had other discrepancies with dates, or were simply unsigned photocopies. For example, in the Eachles lease agreement in Colonial’s possession, the agreement was signed in ink by both Equitable and Eachles, and all dates, including the execution date, delivery date, and acceptance date, were signed March 14, 1990. However, on the Eachles lease agreement in Equitable’s possession, Equitable had not signed, some dates were blank, and most importantly, the execution date was March 14, 1990, but the delivery date and acceptance dates were signed March 13, 1990. Despite these discrepancies, when Equitable filed for Chapter 11 bankruptcy, which was converted to a Chapter 7 bankruptcy, in May 1991, the bankruptcy trustee sought to avoid Colonial’s security interest by claiming that Colonial’s interest was unperfected because Equitable had kept original chattel paper for the Eachles and Coors leases in its possession. Colonial countered that its interest was perfected at the time the bankruptcy petition was filed, and that it maintained full control of the original chattel paper for the Eachles and Coors leases.
Rule of Law
Issue
Holding and Reasoning (Markovitz, J.)
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