Memorandum of Decision Re: Perfection of Security Interest

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re HOLTZINGER BROTHERS,                                       No. 91-10704      Debtor. ___________________________/ JEFFRY G. LOCKE, Trustee,      Plaintiff,    v.                                                                              A.P. No. 92-1113 HAROLD and SARA HOLTZINGER,      Defendants. ______________________________/
Memorandum of Decision
     By this adversary proceeding, the Trustee seeks to avoid as preferential a security interest of defendants in certain construction equipment owned by the debtor. The parties have stipulated that the only issue is whether defendants had possession of the equipment sufficient to establish perfection of their security interest.      The debtor was a construction contractor. The construction equipment was always either on the debtor's premises or on one of its construction projects. Defendant Harold Holtzinger argues that because he was the sole operator of the equipment, and always kept the only set of keys, that he had possession. The court is not persuaded by this argument.      The purpose of requiring perfection of a security interest is to protect third parties. A secured creditor is not permitted to enforce his security rights if another creditor who subsequently extended credit had no way of knowing of the prior lien. In this case, it appeared to all the world that the equipment was unencumbered despite those elements of "possession" argued by defendants. During the day, it appeared that the equipment was being operated by an employee of the debtor. At night, it was left without the keys at either the debtor's property or a jobsite, exactly as it would have been if owned by the debtor free and clear. To perfect a security interest by possession, the nature of the possession must unmistakable. White & Summers, Uniform Commercial Code (3rd Ed.), section 24-12, p. 351. Because defendant's attributes of possession were not unmistakable, and in fact were consistent with possession by the debtor, the court finds that defendants did not perfect their security interest by possession.      Accordingly, the Trustee shall have judgment as prayed, including costs of suit. Counsel for the Trustee shall submit an appropriate form of judgment forthwith. This memorandum constitutes the court's findings and conclusions.
Dated: November 16, 1992                                                                          _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy