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Revised February 9, 1999
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 97-50500
_____________________
ITT COMMERCIAL FINANCE CORPORATION,
Plaintiff-Appellee,
v.
BANK OF THE WEST,
Defendant-Appellant.
_________________________________________________________________
Appeal from the United States District Court
for the Western District of Texas
_________________________________________________________________
January 20, 1999
Before KING, Chief Judge, and WISDOM and DAVIS, Circuit Judges.
KING, Chief Judge:
Defendant-appellant Bank of the West appeals the judgment
of the district court granting plaintiff-appellee ITT Commercial
Finance Corporation's motion for summary judgment. Bank of the
West challenges the district court's determinations that the
security interest of ITT Commercial Finance Corporation has
priority over Bank of the West's security interest, and that Bank
of the West is liable to ITT Commercial Finance Corporation for
conversion. Although we agree with the district court's priority
determination, we disagree with its conclusion on conversion, and

we therefore reverse the district court's judgment and remand for
further proceedings.
I. BACKGROUND
Defendant-appellant Bank of the West (BOW) and plaintiff-
appellee ITT Commercial Finance Corporation (ITT) are both
commercial lenders. Over the course of several years, both BOW
and ITT lent money to the same debtor, a fledgling microcomputer
dealership that operated initially as a sole proprietorship run
by Carlos Chacon and doing business under the trade name
"Compucentro USA." Two predecessors-in-interest to BOW, Coronado
Bank and Texas National Bank, made loans to the sole
proprietorship in August 1988 and February 1990, respectively.
They filed financing statements in the office of the Secretary of
State of the State of Texas (the Secretary of State) to perfect
their security interests in a broad class of current and after-
acquired property under the names "Carlos Chacon d/b/a
Compucentro USA" and "Carlos R. Chacon and Lorena Chacon d/b/a
Compucentro USA." BOW subsequently purchased these loans from
the FDIC and now holds the security interests.
On November 26, 1990, Carlos Chacon incorporated the sole
proprietorship under the name "Compu-Centro, USA, Inc." On
December 12, 1990, Chacon informed BOW of the incorporation using
letterhead of the sole proprietorship bearing the name
2

"Compucentro USA." The letter stated: "Enclosed please find
copies of our newly incorporated license. As you finalize the
paperwork on our loan you [m]ay want to reflect that we are
incorporated."
On January 28, 1991, BOW filed a notice of assignment of the
interest underlying Coronado Bank's 1988 filing with the
Secretary of State, and, on March 11, 1991, BOW similarly filed a
notice of assignment of the interest underlying Texas National
Bank's 1990 filing. These assignment notices did not reflect the
debtor's recent incorporation. Rather, they listed the debtor's
name as "Chacon, Carlos d/b/a Compucentro, USA" and "Carlos R.
Chacon and Lorena Chacon d/b/a Compucentro USA," respectively.
BOW also independently extended secured financing to the new
corporation, filing a new financing statement on January 18, 1991
covering a broad class of current and after-acquired property and
specifying the name of the debtor as "Compucentro, USA, Inc."
Notably, the filing left out the hyphen in the corporation's
legal name.
On October 1, 1991, ITT agreed to extend a line of credit
for inventory purchases to Compu-Centro, USA, Inc. On October
14, 1991, ITT filed a financing statement covering a broad class
of current and after-acquired property and specifying the name of
the debtor as "Compu-Centro, USA, Inc." In the course of
conducting a credit review of the corporation, ITT learned,
through a loan application and a credit report, that Compu-
3

Centro, USA, Inc. had existed before its November 1990
incorporation with a different name and business structure. ITT
also possessed financial documents of the Chacons that listed a
$68,000 liability to BOW for a loan. ITT did not investigate
further, and, on October 18, 1991, ITT obtained an official
search of the Secretary of State's records in the name "Compu-
Centro, USA, Inc." ITT's filing was the sole filing reflected
on the search report.
In the course of its business, Compu-Centro, USA, Inc.
entered into a contract with the federal government to supply a
medical center with computers. Neither ITT nor BOW provided
Compu-Centro, USA, Inc. with funding to obtain these computers.
Compu-Centro, USA, Inc. established an account at BOW in which it
deposited the proceeds of the government contract. No other
funds were deposited into this account. In 1993, Compu-Centro,
USA, Inc. paid BOW $300,000 out of the $1.3 million received as
proceeds of the government contract by a check drawn on the BOW
account. The purpose of the payment was to satisfy, in part, the
outstanding balance on the debt owed to BOW. BOW did not
instruct Compu-Centro, USA, Inc. to make payment out of these
proceeds and never offset or froze the account. At the time of
the payment, Compu-Centro, USA, Inc. was in default on its
obligation to ITT in the amount of $117,795.14.1
1 Compu-Centro, USA, Inc. formally defaulted on its
obligation to ITT on June 4, 1993.
4

On March 7, 1994, ITT filed this diversity action against
BOW seeking a declaratory judgment regarding the priority of its
security interest in the collateral of Compu-Centro, USA, Inc.,
and alleging that BOW had converted the proceeds of the
government contract. On cross-motions for summary judgment, the
district court granted summary judgment in favor of ITT on the
declaratory judgment claim, finding that ITT's lien had priority
because BOW's earlier-filed financing statements were seriously
misleading. Thereafter, the case was transferred to a second
district court judge, who granted ITT's motion for summary
judgment on its conversion claim on the ground that BOW had not
received the government contract proceeds from Compu-Centro, USA,
Inc. in the ordinary course of business because the payment was
in partial satisfaction of a money debt. The district court
entered final judgment in favor of ITT in the amount of
$86,959.98 plus pre- and post-judgment interest. BOW timely
appealed.
II. STANDARD OF REVIEW
This court reviews the grant of summary judgment de novo,
and applies the same standard used by the district court. See
Norman v. Apache Corp., 19 F.3d 1017, 1021 (5th Cir. 1994).
Summary judgment is proper "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to
5

any material fact and that the moving party is entitled to a
judgment as a matter of law." Fed. R. Civ. P. 56(c). All
factual questions are viewed in the light most favorable to the
nonmoving party. See Quest Exploration & Dev. Co. v. Transco
Energy Co., 24 F.3d 738, 741 (5th Cir. 1994). In this diversity
action, we must follow Texas law. See Cosden Oil & Chem. Co. v.
Karl O. Helm Aktiengesellschaft, 736 F.2d 1064, 1069 (5th Cir.
1984).
III. DISCUSSION
A.
Who Has Priority?
If BOW's filings perfected its security interest in the
collateral of the debtor corporation Compu-Centro, USA, Inc., BOW
enjoys first priority and consequently cannot be liable to ITT
for conversion of the proceeds of the government contract.
Although BOW's filings precede ITT's filing, ITT argues, and the
district court held, that ITT has first priority with respect to
the debtor corporation's collateral.
1.
The District Court Opinion
In a thorough and careful opinion, the district court first
addressed whether the 1988 and 1990 financing statements
pertaining to Coronado Bank's and Texas National Bank's loans to
the sole proprietorship sufficiently perfected BOW's security
interest in the collateral at issue in this case--collateral
6

Compu-Centro, USA, Inc. indisputably acquired more than four
months after its incorporation. According to the district court,
because collateral acquired more than four months after Compu-
Centro, USA, Inc.'s incorporation, by definition, had not been
transferred from the sole proprietorship to the new corporation,2
BOW could not rely upon the 1988 and 1990 financing statements to
perfect its security interest in that collateral unless those
filings were not seriously misleading with respect to the
debtor's name after incorporation.3 See TEX. BUS. & COM. CODE ANN.
� 9.402(g) (West 1991).
A financing statement is not seriously misleading if "a
reasonably prudent subsequent creditor would have discovered the
prior security interest." Continental Credit Corp. v. Wolfe City
Nat'l Bank, 823 S.W.2d 687, 689 (Tex. App.--Dallas 1991, no
2 The Uniform Commercial Code (UCC), as adopted in Texas,
provides: "A filed financing statement remains effective with
respect to collateral transferred by the debtor even though the
secured party knows of or consents to the transfer." TEX. BUS. &
COM. CODE ANN. � 9.402(g) (West 1991).
3 Section 9.402(g) further provides:
Where the debtor so changes his name or in the case of an
organization its name, identity or corporate structure that
a filed financing statement becomes seriously misleading,
the filing is not effective to perfect a security interest
in collateral acquired by the debtor more than four months
after the change, unless a new appropriate financing
statement is filed before the expiration of that time.
TEX. BUS. & COM. CODE ANN. � 9.402(g). Therefore, the pre-
incorporation financing statements would sufficiently perfect
BOW's security interest in the after-acquired collateral of the
new corporation provided they were not "seriously misleading."
7

writ). The district court found that the pre-incorporation
financing statements were seriously misleading as to the new name
of the debtor, and therefore BOW was required to file a new
financing statement after the debtor's incorporation to perfect
its security interest in the collateral acquired more than four
months after incorporation. The district court "recognize[d] the
obvious futility of discovering a financing statement [that]
lists the debtor as an individual under the name `Carlos
Chacon' . . . in a search of a corporation under the name `Compu-
Centro, USA, Inc.'" (internal quotation marks omitted).
The court similarly found that BOW's filings of the notices
of assignment of the pre-incorporation security interests were
seriously misleading because they too were filed under the pre-
incorporation name of the debtor. According to the court, the
filings under "Carlos Chacon d/b/a Compucentro USA" and/or
"Carlos R. Chacon and Lorena Chacon d/b/a Compucentro USA" were
seriously misleading because no reasonably prudent creditor
searching for filings pertaining to a corporation named "Compu-
Centro, USA, Inc." could be expected to find them.
The remaining question for the district court, therefore,
was whether BOW's post-incorporation financing statement filed
January 18, 1991 under "Compucentro, USA, Inc." effectively
perfected its security interest in the collateral of the new
8

corporation.4 This required analysis of the Texas non-uniform
amendment which provides that:
[f]iling under a trade name or assumed name alone shall not
be sufficient to perfect a security interest unless the
trade name or assumed name is so similar to the debtor's
legal name that the trade name or assumed name filing would
be discovered in a search of the filing officer's
records . . . conducted in response to a request using the
legal name of the debtor.
TEX. BUS. & COM. CODE ANN. � 9.402(g). ITT argued that BOW's
January 1991 filing under the name "Compucentro, USA, Inc." was
in the corporation's trade name, and that, therefore, its January
1991 filing was invalid because of the Texas non-uniform
amendment. There is no dispute that ITT's search under the
debtor's legal name, "Compu-Centro, USA, Inc.," did not discover
BOW's January 1991 filing.
BOW argued that it did not file under a trade name, but
rather misspelled the debtor's legal name, and that the Texas
non-uniform amendment is therefore inapplicable. According to
BOW, the proper standard for evaluating BOW's filing is whether
the filing would be seriously misleading to a reasonably prudent
subsequent creditor. See id. � 9.402(h).5
4 This filing will be referred to as the "January 1991
filing."
5 Section 9.402(h) of the Texas UCC provides that "[a]
financing statement substantially complying with the requirements
of this section is effective even though it contains minor errors
which are not seriously misleading." TEX. BUS. & COM. CODE ANN. �
9.402(h).
9

The district court held that the Texas non-uniform amendment
does not invalidate BOW's filing. It reasoned that because
"Compucentro USA," and not "Compucentro, USA, Inc.," was the
debtor's trade name, it was clear from BOW's inclusion of the
"Inc." in its filing designating "Compucentro, USA, Inc." as the
name of the debtor that its intention was to file under the
corporation's actual name, not its trade name.
We agree with the district court's analysis and conclude
that the Texas non-uniform amendment does not apply. That
amendment applies only to trade name filings, and not to
misspellings or typographical errors. See Jerald M. Pomerantz,
Trade Name Filings Under UCC Article 9: Anatomy of a Nonuniform
Amendment, 47 Consumer Fin. L.Q. Rep. 34, 36 (1993) (noting that
the Texas non-uniform amendment "is not intended to deal with the
problem of misspellings and typographical errors, which are
covered by section 9.402(h) (the `not seriously misleading'
section)") (footnote omitted). The appropriate analysis,
therefore, is whether BOW's January 1991 filing under the name
"Compucentro, USA, Inc." was seriously misleading such that it
constituted an ineffective filing. See TEX. BUS. & COM. CODE ANN. �
9.402(h).
The district court began its analysis of whether BOW's
January 1991 filing was seriously misleading by describing the
filing system utilized by the Secretary of State. Before the
advent of computerization, debtors were indexed alphabetically in
10

an index book that contained all of the financing statements on
file. A search in response to a request from a prospective
creditor required an employee of the Secretary of State to look
manually through the index book, much as someone would page
through a telephone book. A benefit of manual searching is that
the searcher can retrieve and list not only those financing
statements that exactly match the requested name, but also those
statements that are similar enough to the requested name to fall
in close proximity in the index.
Computerized searching, however, has become the norm. As of
April 1995, the district court found, thirty-seven states had
adopted a computerized filing system, and four more were in the
process of doing so--a response to the ever-increasing volume of
financing statements flooding the filing offices. The Secretary
of State converted its records from a manual to a computerized
filing system in 1972, although manual systems are still used in
roughly 95% of the county clerks' offices in Texas.

Ironically, computerized searching can be less flexible than
manual searching; because of the search parameters used by many
computers, computerized searching often retrieves only names that
exactly match the requested name. The Secretary of State's
computer software has some built-in mechanisms to retrieve
filings that do not match exactly, but are similar to, the
requested name. For example, the system retrieves financing
statements matching two or three words in the requested name. It
11

does not, however, retrieve similar prefixes, suffixes, or
alternative spellings of the debtor's name. Most importantly for
this case, when searching for a hyphenated word, the search
program ignores the hyphen and leaves a space in its place, with
the result that the system treats a hyphenated name as two
separate words. It searches under each of those separate words,
but does not search under the combination of the two.
In reaching its decision, the district court focused on an
important policy interest behind the Uniform Commercial Code
(UCC)--providing notice to potential creditors of the security
interests of earlier creditors. In light of this policy interest
and the reality of computerized searching, the district court
concluded that a financing statement listing a misspelled name
for the debtor that is not discovered in a search by the
Secretary of State under the debtor's correct legal name does not
comply with the requirements of � 9.402. Applying this standard,
the court held that because the name designated by BOW in its
January 1991 filing, Compucentro, USA, Inc., was not discovered
by a search using the corporation's actual legal name, Compu-
Centro, USA, Inc., BOW's January 1991 filing was seriously
misleading and did not perfect its security interest. ITT
therefore had first priority with respect to the corporation's
collateral because all of BOW's filings were seriously
misleading.
12

BOW argues on appeal that, in reaching the conclusion that
BOW's filings were seriously misleading, the district court
improperly applied a bright-line test rather than examining
whether ITT acted as a reasonably prudent subsequent creditor.
2. Analysis
Because we agree with the district court's conclusion that
the Texas non-uniform amendment does not invalidate BOW's January
1991 filing, we focus our attention on whether BOW's pre- and
post-incorporation filings were seriously misleading.6
Evaluating whether a filing is seriously misleading requires the
court to apply the law to the individual facts of the case. See
Borg-Warner Acceptance Corp. v. Fedders Fin. Corp. (In re
Hammons), 614 F.2d 399, 402-03 (5th Cir. 1980) (stating that
court must independently make legal conclusions on basis of facts
of case); First Bank v. Eastern Livestock Co., 837 F. Supp. 792,
802, 803 (S.D. Miss. 1993) (evaluating financing statement on
summary judgment motion and concluding that statement is not
seriously misleading). Here, the material facts are not in
dispute.
6 These filings include the 1988 and 1990 Coronado Bank and
Texas National Bank filings under the names "Carlos Chacon d/b/a
Compucentro USA" and "Carlos R. Chacon and Lorena Chacon d/b/a
Compucentro USA," the 1991 notices of assignment of the 1988 and
1990 security interests under the names "Chacon, Carlos d/b/a
Compucentro, USA" and "Carlos R. Chacon and Lorena Chacon d/b/a
Compucentro USA," and the January 1991 filing under the name
"Compucentro, USA, Inc."
13

Our first task must be to define what constitutes a
seriously misleading filing. Because "`[t]he purpose of the
filing system is to give notice to creditors and other interested
parties that a security interest exists in property of the
debtor,'" National Bank v. West Tex. Wholesale Supply Co. (In re
McBee), 714 F.2d 1316, 1321 (5th Cir. 1983) (quoting Brushwood v.
Citizens Bank (In re Glasco, Inc.), 642 F.2d 793, 795 (5th Cir.
Unit B Apr. 1981)), the relevant inquiry in analyzing the
validity of a filing is whether the filing would suffice to put
subsequent creditors on notice of the prior security interest.
Therefore, as discussed above, a filing is legally sufficient
only if a "reasonably prudent subsequent creditor" would have
discovered the financing statement. Continental Credit Corp.,
823 S.W.2d at 689; see In re McBee, 714 F.2d at 1321. While the
UCC does not require exactitude, "there can be less tolerance of
errors in a debtor's name, since such errors may prevent a
searcher from discovering the financing statement." Transamerica
Commercial Fin. Corp. v. General Elec. Capital Corp. (In re
Wardcorp, Inc.), 133 B.R. 210, 215 (Bankr. S.D. Ind. 1990).
Financing statements containing minor errors or financing
statements in names other than the debtor's legal name are not
invalid, therefore, if they meet the objective of providing
notice to future creditors, i.e., if they are not seriously
misleading. Financing statements that are not likely to be
located by reasonably prudent subsequent creditors, however,
14

cannot provide effective notice to them, undermining the purpose
of the UCC filing system. Our inquiry, then, must be whether
BOW's pre- and post-incorporation filings were sufficient to
inform subsequent creditors of BOW's security interest in the
collateral that Compu-Centro, USA, Inc. acquired post-
incorporation.7
7 We note that revisions to Article Nine of the UCC are
contemplated. A recent American Law Institute draft of a
proposed revision of Article Nine provides that, to be effective,
a financing statement must contain the proper legal name of the
debtor, and also that a filing that does not accurately list the
debtor's legal name is seriously misleading unless it is
discovered by a search under the debtor's legal name:
(a) A financing statement sufficiently provides the name of
the debtor:
(1) if the debtor is a registered organization, only
if the financing statement provides the name of the
debtor as shown on the public records of the debtor's
jurisdiction of organization;
. . . .
(c) A financing statement that provides only the debtor's
trade name does not sufficiently provide the name of the
debtor.
U.C.C. � 9.503 (Proposed Final Draft Apr. 15, 1998).
(a) A financing statement substantially complying with the
requirements of this part is effective even if it contains
minor errors or omissions, unless the errors or omissions
make the financing statement seriously misleading.
(b) Except as otherwise provided in subsection (c), a
financing statement that fails sufficiently to provide the
name of the debtor in accordance with Section 9-503(a) is
seriously misleading.
(c) If a search of the records of the filing office under
the debtor's correct name, utilizing the filing office's
15

We first examine the 1988 and 1990 Coronado Bank and Texas
National Bank filings. If these pre-incorporation filings did
not become seriously misleading once the debtor incorporated,
they would effectively perfect BOW's security interest in the
collateral acquired by Compu-Centro, USA, Inc. more than four
months after its incorporation.8 We conclude that no reasonably
prudent subsequent creditor searching for filings relating to a
corporation named Compu-Centro, USA, Inc. could be expected to
find filings under "Carlos Chacon d/b/a Compucentro USA" and
"Carlos R. Chacon and Lorena Chacon d/b/a Compucentro USA." The
name used on these pre-incorporation filings (that of the owner
of the sole proprietorship) and the name of the new corporation
have nothing in common. No reasonably prudent subsequent
standard search logic, if any, would disclose a financing
statement that fails sufficiently to provide the name of the
debtor in accordance with Section 9-503(a), the name
provided does not make the financing statement seriously
misleading.
Id. � 9.506.
Because we decide this case under the law currently in
effect, we need not respond to the parties' arguments on the
relationship between the current law and the proposed revision.
8
Where the debtor so changes his name or in the case of
an organization its name, identity or corporate
structure that a filed financing statement becomes
seriously misleading, the filing is not effective to
perfect a security interest in collateral acquired by
the debtor more than four months after the change,
unless a new appropriate financing statement is filed
before the expiration of that time.
TEX. BUS. & COM. CODE ANN. � 9.402(g).
16

creditor searching for filings relating to the new corporation
could be expected to find the pre-incorporation filings under the
name Chacon.9 See Stevens v. Century Furniture Co. (In re CL
Furniture Galleries, Inc.), No. 95 C 50103, 1995 WL 756853, at *5
(N.D. Ill. Dec. 20, 1995); 4 James J. White & Robert S. Summers,
Uniform Commercial Code � 33-19, at 212-13, 214 (4th ed. 1995).10
Therefore, the 1988 and 1990 Coronado Bank and Texas National
Bank filings under the names "Carlos Chacon d/b/a Compucentro
USA" and "Carlos R. Chacon and Lorena Chacon d/b/a Compucentro
USA" became seriously misleading upon incorporation and did not
perfect BOW's security interest as to collateral acquired by the
corporation more than four months afterwards because no
reasonably prudent subsequent creditor would have found them when
extending financing to a corporation named "Compu-Centro, USA,
Inc." Similarly, the 1991 notices of assignment of the 1988 and
1990 security interests under the names "Chacon, Carlos d/b/a
9 While the pre-incorporation filings also listed the trade
name of the sole proprietorship, as discussed infra, in Texas, no
reasonably prudent subsequent creditor has a duty to search for
filings under a debtor's trade name because of the Texas non-
uniform amendment. See TEX. BUS. & COM. CODE ANN. � 9.402(g).
10 Professors White and Summers provide support for this
conclusion. In their discussion of a hypothetical in which a
bank lent money to a debtor named "Acme Co." that later changed
its name to "Ajax Co.," they note that "[n]o reasonably diligent
searcher looking under the new name of the debtor, Ajax Co.,
would be likely to find the financing statement showing Bank's
interest in equipment and inventory of Ajax." See White &
Summers, supra, � 31-19, at 213. They reach the same conclusion
in the case where Acme Co. incorporates under the name Ajax Co.
See id. at 214.
17

Compucentro, USA" and "Carlos R. Chacon and Lorena Chacon d/b/a
Compucentro USA" were seriously misleading. Because the notices
of assignment merely changed the name of the holder of the 1988
and 1990 security interests from Coronado Bank and Texas National
Bank to BOW, but did not change the name of the debtor to reflect
the debtor's newly-incorporated status, these notices of
assignment would not have been found by a reasonably prudent
subsequent creditor searching for filings pertaining to the new
corporation Compu-Centro, USA, Inc., and thus did not perfect
BOW's interest in Compu-Centro, USA, Inc.'s collateral.
The remaining question, then, is whether BOW's January 1991
filing was seriously misleading.11 BOW's position is that
outstanding factual questions preclude the resolution of this
issue on a summary judgment motion, mandating a remand to the
district court. When identifying which factual questions stand
in the way of summary judgment, BOW points to facts known to ITT:
that Chacon had operated under the trade name Compucentro, USA
(without a hyphen), had recently incorporated the sole
proprietorship, and had a loan from BOW.12 BOW argues that this
11 Section 9.402(h) of the Texas UCC provides that "[a]
financing statement substantially complying with the requirements
of this section is effective even though it contains minor errors
which are not seriously misleading." TEX. BUS. & COM. CODE ANN.
� 9.402(h).
12 We note that the relevant inquiry is whether the law
recognizes the facts relied on by BOW as relevant to whether
BOW's filings were seriously misleading, not whether material
facts are in dispute.
18

knowledge should have led ITT to discover BOW's security interest
in Compu-Centro, USA, Inc.'s collateral.
As to ITT's knowledge of the debtor's trade name, a search
under the former trade name of the sole proprietorship,
"Compucentro, USA," would have led ITT to all of BOW's filings.
However, after the enactment of the Texas non-uniform amendment,
potential creditors need not search under a debtor's trade name,
even if they have knowledge of that name, because in Texas a
trade-name filing is insufficient to perfect a security interest
unless a search under the debtor's legal name would reveal that
trade-name filing. See TEX. BUS. & COM. CODE ANN. � 9.402(g);
Pomerantz, supra, at 42.13 Therefore, a reasonably prudent
subsequent creditor in Texas would not conduct a search under the
debtor's trade name. ITT's knowledge of Chacon's recent
incorporation and personal indebtedness to BOW is similarly
irrelevant in this case because even if BOW had conducted a
13 The Texas non-uniform amendment was a legislative
response to this court's decision In re McBee, 714 F.2d 1316 (5th
Cir. 1983). See Pomerantz, supra, at 34-36. In In re McBee, we
held that a filing under the debtor's trade name was not
seriously misleading, even though the trade name and the debtor's
actual name shared no words in common, because the facts of the
case indicated that subsequent creditors should have known to
search for the debtor's trade name. See 714 F.2d at 1324-25.
This result placed upon subsequent creditors the burden of
searching under trade names. See Pomerantz, supra, at 36. The
purpose behind the Texas non-uniform amendment was to reallocate
this burden and place upon the first creditor the duty to file
carefully. See id. (noting that the Texas non-uniform amendment
places "risk of loss on the party who is in the best position to
guard against the loss," the first creditor, comporting with the
notice filing system envisioned by UCC's drafters).
19

search in the name of the owner of the sole proprietorship,
Chacon, it would not have found the January 1991 filing in the
name "Compucentro, USA, Inc."
As discussed above, whether BOW's January 1991 filing was
seriously misleading turns on whether the January 1991 filing was
capable of providing notice to a reasonably prudent subsequent
creditor of BOW's security interest. As a reasonably prudent
subsequent creditor, ITT was required to conduct a search under
the debtor's legal name. Here, that search did not discover
BOW's January 1991 filing. At first blush, the difference
between a filing under the name "Compucentro, USA, Inc." and a
filing under the debtor's legal name "Compu-Centro, USA, Inc."
appears so minor that it seems counterintuitive to conclude that
a filing under the first name is ineffective. However, the law
requires more than a comparison between the two names. BOW
incorrectly listed the debtor's name on its January 1991 filing.
Reasonably prudent subsequent creditors are not required to
search under every conceivable misspelling of a debtor's name.
See In re Wardcorp, 133 B.R. at 215 ("Any rule that would burden
a searcher with guessing misspellings and misconfigurations of a
legal name . . . would not provide creditors with the certainty
that is essential in these commercial transactions.").
Therefore, because the name Compucentro, USA, Inc. did not appear
in connection with a search under the debtor's legal name, which
would have placed the subsequent creditor on notice to inquire
20

further, see Paramount Int'l, Inc. v. First Midwest Bank, N.A.
(In re Paramount Int'l, Inc.), 154 B.R. 712, 715 (Bankr. N.D.
Ill. 1993), BOW's January 1991 filing was seriously misleading
because no reasonably prudent subsequent creditor could be
expected to find it. Although this outcome may appear harsh, it
comports with the policies underlying the UCC. "[P]lacing on the
filing creditor the burden of ascertaining and filing under a
debtor's legal name is necessary to effectuate the UCC's policy
of certainty and simplicity in these commercial transactions."
In re Wardcorp, 133 B.R. at 216-17.14
We reject BOW's contention that, under the facts of this
case, ITT had a duty to broaden its search beyond the debtor's
legal name. BOW has presented no other facts on appeal from
which to conclude that a reasonably prudent creditor lending
money to Compu-Centro, USA, Inc. would have searched under any
name other than the debtor's correct legal name. Therefore, the
district court properly granted summary judgment in favor of ITT
on the issue of priority.15
14 We are not presented with a case where the Secretary of
State's computer search logic is limited to retrieving names that
exactly match the legal name of the debtor, and therefore need
not decide whether a reasonably prudent creditor in that
situation would have broadened its search.
15 Because we conclude that a reasonably prudent subsequent
creditor lending money to Compu-Centro, USA, Inc. would not, on
this record, have searched under a name other than the debtor's
legal name, we have no occasion to consider the validity of the
district court's holding that reasonably prudent subsequent
creditors in every situation need only search under the legal
21

B.
Did BOW convert funds that rightfully belonged to ITT?
Because ITT has first priority with respect to Compu-Centro,
USA, Inc.'s collateral, we must decide whether BOW converted the
proceeds of the government contract. Under Texas law, conversion
is the wrongful exercise of dominion and control over another's
property in violation of the property owner's rights. See
Amarillo Nat'l Bank v. Komatsu Zenoah America, Inc., 991 F.2d
273, 274 (5th Cir. 1993); Tripp Village Joint Venture v. Mbank
Lincoln Ctr., N.A., 774 S.W.2d 746, 750 (Tex. App.--Dallas 1989,
writ denied).
ITT argues that its security interest in Compu-Centro, USA,
Inc.'s collateral afforded it the right to the proceeds of the
government contract.16 A properly perfected security interest
extends to the identifiable cash proceeds of a sale of collateral
subject to that security interest. See TEX. BUS. & COM. CODE ANN.
� 9.306(b) & (c)(2) (West 1991 & Supp. 1999). The holder of the
security interest is entitled to recover cash proceeds from
unauthorized subsequent transferees. See id. � 9.306 cmt. 3;
Amarillo Nat'l Bank, 991 F.2d at 275. In the instant case, the
proceeds of the government contract were identifiable because
they were paid into a special account at BOW into which no other
name of the debtor.
16 Under � 9.503, ITT acquired a right of immediate
possession of Compu-Centro, USA, Inc.'s collateral on June 4,
1993, the date on which Compu-Centro, USA, Inc. defaulted on its
obligations to ITT. See TEX. BUS. & COM. CODE ANN. � 9.503.
22

funds were deposited, and Compu-Centro, USA, Inc.'s payment to
BOW was drawn on that account. ITT never authorized Compu-
Centro, USA, Inc.'s payment to BOW.
Comment 2(c) to � 9.306, however, suggests an exception to a
senior creditor's right to recover transferred proceeds:
Where cash proceeds are covered into the debtor's checking
account and paid out in the operation of the debtor's
business, recipients of the funds of course take free of any
claim which the secured party may have in them as proceeds.
What has been said relates to payments and transfers in
ordinary course. The law of fraudulent conveyances would no
doubt in appropriate cases support recovery of proceeds by a
secured party from a transferee out of ordinary course or
otherwise in collusion with the debtor to defraud the
secured party.
TEX. BUS. & COM. CODE ANN. � 9.306 cmt. 2(c). Thus, if Compu-
Centro, USA, Inc. made payment to BOW "in ordinary course," BOW
would take the proceeds free of ITT's security interest.
The definition of "ordinary course" is the problematic
issue. The district court utilized the definition of "buyer in
ordinary course of business" found in � 1.201(9):
"Buyer in ordinary course of business" means a person who in
good faith and without knowledge that the sale to him is in
violation of the ownership rights or security interest of a
third party in the goods buys in ordinary course from a
person in the business of selling goods of that kind . . . .
"Buying" may be for cash or by exchange of other property or
on secured or unsecured credit and includes receiving goods
or documents of title under a pre-existing contract for sale
but does not include a transfer in bulk or as security for
or in total or partial satisfaction of a money debt.
23

Id. � 1.201(9) (emphasis added).17 Applying this definition in
the context of Comment 2(c), the district court reasoned that
because Compu-Centro, USA, Inc. paid BOW the government contract
proceeds in partial satisfaction of a money debt, the payment was
not in ordinary course for purposes of Comment 2(c). The
district court consequently found that Comment 2(c) did not allow
BOW to accept the payment of the government contract proceeds
free of ITT's superior security interest and therefore granted
ITT's motion for summary judgment on its conversion claim.
BOW challenges the district court's conclusion that the
definition of "ordinary course" for purposes of Comment 2(c) is
coextensive with � 1.201(9)'s definition of "buyer in ordinary
course of business." The critical question is whether an element
of � 1.201(9)'s definition of "buyer in ordinary course of
business"--that the payment cannot be made in total or partial
satisfaction of a money debt--is also an element of "ordinary
course" for purposes of Comment 2(c), as the district court held.
BOW contends that it is not. According to BOW, excluding
payments made in total or partial satisfaction of a money debt
from "ordinary course" for purposes of Comment 2(c) would render
Comment 2(c) meaningless because every junior or unsecured
17 The district court also relied upon Professors White and
Summers for the proposition that, for purposes of Comment 2(c),
junior creditors receiving payment of proceeds in ordinary course
should be treated like buyers in the ordinary course under
� 1.201(9). See 4 James J. White & Robert S. Summers, Uniform
Commercial Code � 33-19.5, at 75 (4th ed. Supp. 1998).
24

creditor who accepts a payment of proceeds from a debtor--
including a vendor accepting a trade debt payment, a landlord
accepting a rent payment, an employee accepting a payment of
wages, an insurance agent accepting a policy premium payment, or
a bank accepting a payment to reduce loan debt--does so in total
or partial satisfaction of a money debt. Under the district
court's interpretation of Comment 2(c), therefore, every junior
or unsecured creditor who accepts proceeds as payment will be
liable for conversion, a result that would eviscerate Comment
2(c). We find BOW's analysis persuasive.
ITT urges us to affirm the district court's conclusion that
Compu-Centro, USA, Inc. paid BOW outside the ordinary course of
its business for purposes of Comment 2(c) because the payment was
in partial satisfaction of a money debt. ITT cites cases holding
that recipients of collateral transferred in total or partial
satisfaction of a money debt fall outside the definition of
"buyer in ordinary course of business." See Amarillo Nat'l Bank
v. Komatsu Zenoah America, Inc., 991 F.2d 273 (5th Cir. 1993);
Permian Petroleum Co. v. Petroleos Mexicanos, 934 F.2d 635 (5th
Cir. 1991); Central Appraisal Dist. v. Dixie-Rose Jewels, Inc.,
894 S.W.2d 841 (Tex. App.--Eastland 1995, no writ); Chrysler
Credit Corp. v. Malone, 502 S.W.2d 910 (Tex. App.--Fort Worth
1973, no writ). These cases, however, do not speak to whether a
payment in total or partial satisfaction of a money debt is
excluded from "ordinary course" under Comment 2(c), nor do they
25

even mention the provision. Rather, they pertain explicitly to
creditors who receive collateral in satisfaction of money debts
and therefore fail to qualify as a "[b]uyer in ordinary course of
business" under � 1.201(9) (emphasis added). See Amarillo Nat'l
Bank, 991 F.2d at 276; Permian Petroleum Co., 934 F.2d at 648-49;
Central Appraisal Dist., 894 S.W.2d at 842-43; Chrysler Credit
Corp., 502 S.W.2d at 912-13. Neither ITT nor the district court
has cited any authority that would exclude from the definition of
"ordinary course" in the context of Comment 2(c) the payment of
proceeds in total or partial satisfaction of a money debt.
We agree with BOW that the district court's interpretation
of Comment 2(c) cannot stand.18 We see no need to import
� 1.201(9)'s exclusion of transfers in total or partial
satisfaction of money debts into Comment 2(c) because that
exclusion arises specifically in the context of defining
"buying," a term that, while necessary for purposes of defining
"buyer in ordinary course of business," is not applicable to
Comment 2(c):
Buying may be for cash or by exchange of other property or
on secured or unsecured credit and includes receiving goods
or documents of title under a pre-existing contract for sale
but does not include a transfer in bulk or as security for
or in total or partial satisfaction of a money debt.

18 Having found no Texas authority directly on point, we
look to the law of other jurisdictions and interpret the law as
we believe the Texas courts would. See Orix Credit Alliance,
Inc. v. Sovran Bank, N.A., 4 F.3d 1262, 1266 (4th Cir. 1993).
26

TEX. BUS. & COM. CODE ANN. � 1.201(9) (emphasis added). The
district court improperly imported the part of the definition of
"buyer" that excludes payments in satisfaction of money debts
into the definition of "in ordinary course" for purposes of
Comment 2(c), and therefore it applied the wrong standard in
awarding summary judgment to ITT on its conversion claim.
The proper definition of "ordinary course" for purposes of
Comment 2(c) remains to be determined. Looking to the remainder
of � 1.201(9)'s definition of "buyer in ordinary course of
business" (that is, without adding the requirements specific to
the term "buyer"), we concur with our sister circuits that have
found that Comment 2(c) protects payments made in the operation
of the debtor's business absent improper conduct on the part of
the recipient of the transferred proceeds. In Harley-Davidson
Motor Co. v. Bank of New England--Old Colony, N.A., 897 F.2d 611
(1st Cir. 1990) (considering identical Rhode Island UCC
provision), the First Circuit interpreted the phrase "ordinary
course" in Comment 2(c) broadly, suggesting that only conduct
"that, in the commercial context, is rather clearly improper"
falls outside its scope. Id. at 622. The court cautioned
against an overly-narrow reading lest "ordinary suppliers,
sellers of gas, electricity, tables, chairs, etc., . . . find
themselves called upon to return ordinary payments . . . to a
debtor's secured creditor." Id. Under the court's
interpretation, there are "good commercial reasons" for
27

"even . . . sophisticated suppliers or secondary lenders, who are
aware that inventory financers often take senior secured
interests in `all inventory plus proceeds,'" to escape liability
absent improper conduct. Id.
Building upon this precedent, the Seventh Circuit in J.I.
Case Credit Corp. v. First Nat'l Bank, 991 F.2d 1272 (7th Cir.
1993) (interpreting identical Indiana UCC provision), concluded
that "under Comment 2(c), a payment is within the ordinary course
if it was made in the operation of the debtor's business and if
the payee did not know and was not reckless about whether the
payment violated a third party's security interest." Id. at
1279. In reaching this conclusion, the court interpreted the
language of Comment 2(c), which in Indiana, as in Texas, provides
that a secured party can recover proceeds "from a transferee out
of ordinary course or otherwise in collusion with the debtor to
defraud the secured party." TEX. BUS. & COM. CODE ANN. � 9.306
cmt. 2(c); see J.I. Case Credit, 991 F.2d at 1276, 1277.
According to the court, the use of the word "otherwise" in the
above quotation implies that the definition of "out of ordinary
course" must contain an element also found in the definitions of
fraud and collusion. "If `out of ordinary course' was not meant
to involve common elements with collusion and fraud, the more
natural phrasing would have been `out of ordinary course or in
collusion . . . .'" J.I. Case Credit, 991 F.2d at 1277. The
court therefore decided that transfer "out of ordinary course"
28

requires knowledge on the part of the transferee that the
transfer violates a superior security interest: Payment to a
third party in the operation of the debtor's business is in the
ordinary course "unless [the third party] knows the payment
violates a superior secured interest in those funds." Id.; cf.
Orix Credit Alliance, Inc. v. Sovran Bank, N.A., 4 F.3d 1262,
1267 (4th Cir. 1993) (holding that knowledge of prior security
interest alone does not indicate that the transfer of proceeds
occurred outside ordinary course under identical Virginia UCC
provision). As an alternative to establishing knowledge, the
court decided that recklessness about whether a payment violated
a prior security interest also takes the payment out of the
ordinary course. See J.I. Case Credit, 991 F.2d at 1278.
It is significant that the J.I. Case Credit court considered
its interpretation of Comment 2(c) to be consistent with
� 1.201(9)'s definition of "buyer in ordinary course of
business." Section 1.201(9)'s definition protects those who buy
"in good faith and without knowledge that the sale . . . is in
violation of the ownership rights or security interest of a third
party." TEX. BUS. & COM. CODE ANN. � 1.201(9). By analogy to this
provision, the court reasoned that "ordinary course" for purposes
of Comment 2(c) similarly requires good faith and lack of
knowledge of the violation of a superior security interest. See
J.I. Case Credit, 991 F.2d at 1277-78. Notably, although the
court looked to � 1.201(9), it did not import that provision's
29

exclusion of payments made in total or partial satisfaction of
money debts.
Professors White and Summers provide further support for
this approach. They agree with the reasoning of the courts that
have found that junior creditors do not commit conversion merely
by accepting payment with knowledge of a senior claim:
[A]ny payment of proceeds paid in good faith and in the
ordinary course to a junior creditor are free of the claim
of the senior, and their taking does not constitute
conversion by the junior creditor. We would treat the
junior creditors here like buyers in the ordinary course
under 1-201(9). A buyer can be in the ordinary course even
though he knows of a security interest in the asset he is
buying as long as he does not know that the transfer to him
is in violation of that security interest. By the same
token we would argue that the junior should take free of the
prior party's perfected security interest in proceeds even
though he knows of the security interest, as long as he does
not know of a term in the senior's agreement or an event in
that relationship that could make the payment to him a
violation of the debtor's promise to the senior creditor.
4 James J. White & Robert S. Summers, Uniform Commercial Code
� 33-19.5, at 75 (4th ed. Supp. 1998).19
19 Contrary to the interpretation of ITT and the district
court, the suggestion in the above quotation that, for purposes
of Comment 2(c), junior creditors should be treated like buyers
in the ordinary course under � 1.201(9) does not support adopting
� 1.201(9)'s requirement that the transfer cannot be made in
total or partial satisfaction of a money debt. Rather, as the
text of the quotation makes clear, Professors White and Summers
would treat a junior creditor under Comment 2(c) like a buyer in
the ordinary course under � 1.201(9) only to the extent that both
take free of a senior party's security interest, even with
knowledge of that interest, so long as they lack knowledge "of a
term in the senior's agreement or an event in that relationship
that could make the payment . . . a violation of the debtor's
promise to the senior creditor." White & Summers, supra, � 33-
19.5, at 75.
30

We agree with the reasoning of the courts and commentators
discussed above, and we therefore hold that, for purposes of
Comment 2(c), a payment is within the "ordinary course" if made
in the operation of the debtor's business and if the recipient of
the payment acted in good faith and without knowledge of or
recklessness about whether the payment violated a third party's
security interest. This result is consistent with the relevant
portions of the definition of "buyer in ordinary course of
business" under � 1.201(9), which requires good faith, a lack of
knowledge of the violation of a superior security interest, and a
purchase from a person in the business of selling goods of that
kind. See TEX. BUS. & COM. CODE ANN. � 1.201(9).
In light of the above principles, the district court
improperly granted summary judgment to ITT on its conversion
claim. We therefore reverse its judgment and remand for
application of the proper legal standard.
IV. CONCLUSION
For the foregoing reasons, we REVERSE the judgment of the
district court, and remand for proceedings consistent with this
opinion.
31