*2 FRIENDLY, Before HAYS and MULLI- GAN, Judges. Circuit FRIENDLY, Judge: Circuit September 18,1970, On appellant Charles began Gold an in the Supreme action Court County New York sought which he the dissolution of (the Inc. “Corporation”), 49% of whose owned, he shares restraining corporation’s and officers directors from withdrawing any corporate funds, appointment of a receiver pending dis- solution. The grant- court entered an order ing this relief in toto. While appeal pending, Corporation and Gold entered agreement 16,1970 into an dated December whereby Gold’s claims would compro- repurchased by mised his stock Corporation. provided that Corpo- $150,000 pay

ration would Gold 17% was allocated settlement of any claims Gold the Corporation and pay purchase 83% was to for the of Gold’s The Corporation paid $57,000 shares. upon agreement; the execution of the the bal- paid bi-monthly ance was to be in 18 install- $5,138.88, ments of beginning March receivable, accounts fixtures equip- Paragraph 6 of ment, “as granted to Gold motor and all other Corporation vehicles assets the balance of payment for the now owned or to be owned in the future. security interests in all Price presently the Purchase The motor vehicles included Corporation. Van, Dodge the assets owned” consist of a 1970 No. Serial *3 de- provided 627, that Gold would Paragraph A100, A12ABOU125 Model No. and a party certificates to a third his stock Dodge Wagon, liver Serial No. receiver) temporary the former (actually 048, A12ABOU124 Model No. A100. the Purchase Price in escrow until be held $83,000 approximately Gold had received the escrow 15 directed paid; paragraph was when, 17, agreement February under the on default, to sell the in the event of agent, 1972, Corporation petition the filed a under by if neces- in escrow Gold deposited shares Chapter XI of the Bankruptcy Act. Gold by the sary any balance unsatisfied to retire proceeding Bankruptcy instituted a in the security. by Gold on his proceeds realized Court for the enforcement of security the “Title and all Paragraph provided that agreement upon by Corporation. default the and to the rights ownership in shares proceeding This came before Bankruptcy by in escrow es- Flying Mailmen held [the Judge Herzog while the Corporation was in by be agent] deposited and Gold shall crow Chapter XI. Before an order was entered Flying transferred to Mailmen as deemed Judge Herzog’s 19,1972, on decision of June the date of the execution of this claim, denying compromise Gold’s a ” was . It further ment. . . by entered into Gold Corporation, and the agreement shall of the date of the “Gold possession. the debtor This ap- was the shares of rights ownership no or have proved by an order Bankruptcy of the deposited by him in es- Flying Mailmen so Judge, by which was in turn reviewed the crow, he be deemed to have the nor shall petition by District Court on a creditors. Flying of a shareholder of Mailmen.” completion Prior of the District January financing a Gold filed review, Corporation adjudi- Court the pursuant to New York’s U.C.C. statement bankrupt petition cated a was re- statement did not 9-403.1 Bankruptcy Judge. manded the was, in the secured state remand the sought On Trustee to chal- repurchase by corpora- a of stock a part, lenge the settlement repur- tion; however, following it did make the chase as invalid at the time it respect property with covered: answer made, but that contention was not con- Financing has been exe- This Statement Bankruptcy Judge. sidered the He re- pursuant agreement, to an dated cuted original fused to enforce the agreement or 16, 1970, December between Charles it, security the interest holding created Gold, Party, Flying Mail- Secured since, applicable under New York law Service, Inc., Park Avenue Mail men corporation may purchase a its own Service, Debtors, parties, Inc. and other stock when it thereby has become or would security to Gold interests in all granting insolvent, provisions become Flying the assets owned debtor Service, agreement by which Corporation had Mailmen Inc. and to be owned agreed includes its stock said debtor in the future. had become argument study ing carrying proper In further of the case after name had statement, copy Secretary we noticed that the filed with the been of State and that appendix, describ- of which was included problem. By he trusted this took care of the Service, Park Mail ed as the debtor Avenue May letter dated 1976 counsel for the Trus- Inc., wholly-owned subsidiary Flying Mail- wrong financing tee waived “the fact that request At addressed a men. our Clerk placed appendix statement was in the and that asking letter counsel to comment on this unless the same can be treated to read point. willing the Trustee was to waive Inc., rather than Park Avenue Mail appellant supplied dated a letter Counsel Services, Inc.” May 1976 in which he stated that financ- tion, .purchase shares, its own may and that unenforceable obliga- shares, secure unenforceable “given redeem its redeemable out of sur- tion, He fur- is likewise unenforceable.” currently when plus except corpora- that, financing state- despite held ther tion is insolvent or would thereby ment, the to Gold for balance of debt made insolvent. an unse- price stock constituted language “except when currently the claim claims of subordinated to the cured corporation (emphasis sup- is insolvent” ordered to general all creditors. Gold was plied) strengthens the view that installment money paid respect to him refund may not payments be made in a situation of after the date the debtor the stock on which though, here, even insolvency the agree- petition bankruptcy. filed a had ment itself have been made when petition review, the District On a surplus had sufficient to cover of New for the Southern District Court *4 price, the entire purchase and title to the affirmed, it denied York to the extent stock has transferred. been Cf. Mantell v. status a with Gold’s as secured creditor Unipak 1134, Corp., Aviation 28 284 A.D.2d stock, payment to the but re- respect for (1967); 640 N.Y.S.2d Nakano v. Nakano Bankruptcy the case to allow the manded Inc., Nightingale McGlone Advertising, 84 the Corpo- to determine the date Judge 905, 377 (1975).2 Misc.2d 1001 N.Y.S.2d the insolvency so as to fix amount ration’s otherwise, arguing Not appellant relies permit the by and also to repayable Gold Beguelin, 262, 265, 169 on Cross v. 252 N.Y. answer to move to amend his to Trustee (1929), N.E. 378 a case arising prior en to challenge original agree- the validity of the governed actment of 513 and by 664 of § § of Flying ment unconscionable. Matter Cross, the New Penal York Law.3 the (S.D.N.Y. F.Supp. 402 790 that, Appeals Court of held although the 1975). appealed. Gold has agreement initial was valid the and title to passed payment stock but full had had 513(a) of New York Section the made, yet been that: Corporation

Business Law states corporation, subject corporation financially A restrictions After the any became incorpora- in surplus contained its certificate of and the embarrassed shrank a solely rely 513(a) 2. The district court did not on 513 under § § was invalid when but made 514(b) provides: consistently also cited which § but could be carried out sec- with that performance tion when time for ar- had possibility corporation that a not be The 514(b) speak rived. Section does not purchase its section 513 able shares under here, situation where the contract was valid ground denying to not be a for either shall performed but when made could not be specific performance consist- party an ently 513(a) supervening purchase by corporation § due to insol- a of its own for vency 514(a) shares, 513(a) performance makes it § if at clear that § the time for part corporation purchase in can all or of such is unaffected that situation. shares under section 513. 3. This section made it a a misdemeanor for not, however, 514(b) The enactment of was § any by director to concur in vote or act which put 513(a) effort to further § an teeth into but apply any portion it is “to intended of the funds Topken, Loring was intended to rather overrule corporation, directly except surplus, of such or Schwartz, Schwartz v. 249 N.Y. 163 & indirectly, purchase of shares own of its (1928). In that decision the Court of N.E. replaced by stock.” Section 664 was 190.- perform- Appeals grant specific had refused to 35(l)(e) of the Penal Law which that: corporation in an a ance action enforce person guilty corpo- A of misconduct purchase for the of stock from an rate official when: employee employment at the termination of his Being corporation a director of a stock he ground that the contract lacked mutuali- on knowingly concurs in vote corporation’s promise ... ty of since the is intended: necessarily having it its conditioned on (e) ended, apply any portion surplus employment when some- corporation, directly thing corporation’s such funds of indi- not within control. rectly, purchase 514(b) the further of shares of own would seem to have its Section except permitting provided by of a contract in the enforcement stock manner law. result purchase by corporation unenforce- tice of the deficit, agreement became subsequent stock” to corporation.4 its own creditors with- against able meaning in the of Cross. With full appreci- say, went on to But the court argument the excellent ation of of Gold’s against However, claim is not counsel and of the considerations powerful- is directed assets corporation. ly urged Mulligan’s dissent, our brother a creditors’ committee. possession we are constrained to hold otherwise. the submis- for all corporation, shows, going concern with stated, is still sion As Cross there was actual the stock in the ownership of all creditor, knowledge by the later and the purchaser]. possession of that “notice” would suffice [a no inter- appears to have in a sense dictum. Some idea of what the * * * controversy. in this est [T]he Appeals may Court of have meant “no between Ferdi- now is between real issue cited, conveyed by tice” is case which it creditor, Cross, prior as a nand Co., First Trust Co. v. Illinois Central R. estate, creditor Beguelin Cir.), denied, (8th cert. F. 830 U.S. also as a holder of salary arrears and (1919). 63 L.Ed. 803 39 S.Ct. That case of creditors preferred stock. mortgage dealt with a recorded which recit- course, stock- are, superior to those of underlying agreement, ed the nature of the rights of the seller of the holders. The viz., that was stock contract. superior to those of appear to be We have been referred to no other case in *5 corporation subsequent creditors of which the claims of creditors were subordi- pur- with notice of the who became such security repurchase nated to a for a stock corporation chase of its own stock. agreement which had become illegal that 265-66, (cita- at 252 N.Y. at 169 N.E. knowledge not involve did of the omitted). three tions The first sentences of creditors, on the part of see quoted paragraph may not have sur- Milling v. Hedges, Huron Co. 257 F.2d 513; event, any vived enactment of (2 1958). § 263 Cir. While we must take the Co., supra, In Fechheimer Fishel light of re language of Cross to mean that something 4, we 212 F. see note consider them knowledge suffice, less than actual we bankruptcy. inapplicable to a trustee in policy see no reason to strain to hold that asterisks, however, portion The after filing the mere of a statement question is continues to be viable. affording no indication that what it means. a repurchase agreement secured is stock will suffice. general

In Cross there were no creditors unpaid except salary claims claims for of In contrast to the normal valid com represented officers who and directors had mercial transactions for which in U.C.C.’s corporation making in the of the stock devised, novation of notice a repurchase contract and whose claims for repurchase of depletes corporation’s a salary to the accrued assets without consideration of value to ment; Beguelin merely had not “notice” moving corporation creditors in re knowledge the repurchase but actual turn. Such cases as there are reflect a contract. recognition of the unusual character of such decide in the Gold would have us transactions and hence suggest a distinction present provided by required case that the “notice” between the notice prevent sub perfect sequent challenging his creditors from a securi required by ing ty his interest as N.Y. created in connection with an 9-402 and 9-403 constitutes “no- that was and U.C.C. remains valid and the notice §§ Appeals approval cited with The Court this court had subordinated the claim of a sell- Co., Cir.), (2 re Fechheimer Fishel 212 F. 357 ing stockholder on an unsecured note to claims denied, 760, 34 cert. 234 U.S. S.Ct. general creditors. (1914), bankruptcy L.Ed. 1580 case in which gave subsequent credi- no notice to creditors of what actu- required to subordinate obligation that is who securing ally occurred. Creditors examined tors to a lien corpora- longer sup- enforceable the record would have had reason to no pose corporate aug- assets were tion. $2,025, mented the amount of a loan of Co., Bros. Construction In In re Dawson payments being depleted by instead of corpora- (N.D.N.Y.1963), F.Supp. 411 mortgagees. action to reduce appropriate had taken tion repurchase and reflect a stock capital its is true that Dawson Brothers offices proper “in the Co., filed documents supra, Bay had In re Construction F.Supp. taken.” 218 the action Inn, as notice of Ridge supra, do not control our deci however, not, had Brothers, stated, here. in sion Dawson any others indicated or in these documents adequacy volved the of a notice of reduction paid to be on the that a debt remained capital Bay Ridge, long which arose Conceding that agreement. repurchase U.C.C., before the birth of the was con doubt, subsequent creditor problem sidered to involve the of a Without sham [a] of a impairment having notice dividend and therefore decided under capital structure who there- corporation’s former 58 of the New York Corpo Stock charged is with the However, after extends credit Law. they display ration do impairment, effect of such notice and recognition requirement that the “notice” purposes not the same for all and in all apply id., nevertheless refused to the court circumstances, adequate and that notice un proof was no principle when there protect arising der the U.C.C. to valid liens had notice of the de- subsequent creditors from normal commercial transactions will Stating that there was payments. ferred suffice afford benefits the creditors affirmative evidence accorded in some circumstances even Cross knowledge no existence had deplete corporate to a contract to assets for court held that outstanding notes [the of stock whose enforcement rely upon right then had the creditors] illegal. significant has become distinc a trust fund for their capital the stated tion is that whereas the U.C.C. is concerned protection. *6 against debtor, with claims enforceable Id. Beguelin Cross v. relates to an point closer to the and A decision still become has unenforceable. creates Inn, Bay Ridge In re authoritative is more special exception obligee in favor of the 1938). There, (2 in F.2d Cir. who, spe those creditors because of gener- refusing to subordinate the claims circumstances, good cial cannot in con by note secured a chattel al creditors to a prevail against science be him. allowed given which had been to stock- mortgage fully recognize importance We their to a third who had sold stock holders embroidering qualifications of not on the argument that the rejecting and person filing. simply scheme notice We as con- U.C.C.’s filing mortgage should serve creditors, regard provisions inapplicable the U.C.C. as structive notice wrote, and insufficient to a case where the holder Judge A. N. Hand obligation requiring payment of an mortgage face the indicated On its stock, perform corporate funds for its own moving corporation. to the consideration illegal which ance of has become because of only authorized the Indeed the resolution corporation’s insolvency, seeks to avail $2,025 from the corporation to borrow exception, himself of the narrow created in mortgage execute the petitioners and to that he Bequelin, Cross v. nevertheless security for such a loan. The loan was security against persons enforce his who mortgage was used never made and the the existence of a claim corporation, have funds for the not to obtain “notice” longer legally can give mortgagees security which the debtor no re only but spond. We read the decision of the Court they sold their stock. record when construing more in the decision Article 9 which would Appeals requiring in Cross even suggest that an such additional informa- way of “notice” than an indication exists; in the financing tion be included statement. agreement of some sort we do not adopted think that when New York The entire thrust of Article 9 of the Code U.C.C., it intended to the Cross broaden recording was to eliminate transaction exception. system proved which had unwieldy and ineffective and replace it with a judgment of the district court is af- simplified system and unified of notice fil- security agree- as it held the firmed insofar Gilmore, ing. Security in Interests Per- priority ment unenforceable in to the claims (1965). Property sonal 462-71 There is no creditors. The case is re- dispute that section complied 9-402 was manded to the district court remand to majority with here.2 The in effect is judge the bankruptcy proceed- for further amending the by imposing Code an addi- ings including determining the date of in- requirement tional contrary only not entertaining solvency the motion spirit letter but also to the and intent of his Trustee to amend answer so as to ask Article 9. repurchase that the settlement and entire agreement be declared unconscionable. majority suggests that the U.C.C.’s innovation of notice was intended to

MULLIGAN, Judge (dissenting): Circuit a normal cover valid commercial transac- tion, I respectfully agree I dissent. cannot and not a stock financing depletes corporate that the statement which assets without here, fully complies consideration of value moving N.Y.U.C.C. to the corpo- 9-402, does not constitute notice to subse- distinguishes ration. While this § the securi- quent ty creditors of Gold’s interest of Gold here from the usual arising purchase by corpora- from the financing agreement, no means fol- The majority tion of his shares of stock. lows that the security interest created requires opinion state- is governed by the re- ment, require- in addition to the minimal quirement of section 9—402. On the con- 9-402,1 ments set forth in section also indi- trary, the intent of the draftsmen of the Code, cate that transaction is a fully which was reported studied and repurchase agreement. There is no the Law Revision Commission of the requirement York,3 amply such the Uniform Commer- State of New is demonstrated authority any by language cial Code and there is of section 9-4024 which no. 9-402(1) part: provides Policy Scope relevant 9-102. "§ of Article A is sufficient if it (1) Except as otherwise in Section signed by party, the debtor and the secured multiple 9-103 on state transactions and in *7 gives party of the secured from address transactions, Section 9-104 on excluded concerning security which information the applies any personal Article far so as concerns obtained, may gives mailing interest property jurisdiction and fixtures within the address of the debtor contains state- this State indicating types, describing ment or (a) any (regardless form) to transaction of its items, of collateral. . security which is to intended create a interest copy security 2. While it is true that a of the personal property including or fixtures as a itself is sufficient documents, instruments, goods, general in- supplies speci- statement if it the information tangibles, paper, chattel accounts or contract signed fied section 9-402 and is both rights; and also Anderson, parties (4 Uniform Commercial (b) accounts, to sale of contract or (2d 1971)), Code 9—102:b ed. it is of course .§ paper. chattel required procedure. not but is an alternate Na- (2) applies security This article to interests Co., Register v. tional Cash Co. Firestone & 346 including pledge, assign- created contract 255, 471, (1963). Mass. 191 N.E.2d 475 ment, mortgage, trust, chattel chattel trust deed, Commission, lien, trust, Report equipment 2 Law Revision factor’s conditional sale, Hearings receipt, on Uniform Commercial Code trust other lien or title retention (1954). 1011-214

873 Inc., 643, any transac- applicable 884, Article 9 32 A.D.2d 300 makes N.Y.S.2d 887 1969): is intended regardless (2d of its form which Dept. tion security interest. to create purpose of a notice-filing statute is to create here involved intended ment give protection to a creditor by fur- fact that it an interest in Gold and such nishing others intending to enter into a agreement is from a stock arose transaction with the starting debtor a has ob- relevant. Professor Gilmore point investigation for which will result that where counsel is confronted served warning concerning fair the transac- situation, a novel contemplated. tion name to the docu- give whatever he (citations omitted). See also Marine Mid- drafts, up, if he he will ments end Conerty Pontiac-Buick, Inc., land Bank v. to create a is one “intended “transaction” 311, 77 Misc.2d 352 953, 958 N.Y.S.2d interest,” 9 security within an Article se- (Sup.Ct. Albany Cty.1974); John Deere Co. interest, curity subject to the Article 9 v. William C. Pahl Co., Construction and, rules, metaphysics the Article 9 most 872, 701, Misc.2d 300 N.Y.S.2d 703 (Sup.Ct. filing importantly, system. the Article 9 Cty.1969), aff’d, Onondaga 85, 34 A.D.2d Gilmore, supplied). supra (emphasis at 296 1 (4th 945 310 Dept.1970); N.Y.S.2d Bank of only arising a security Not Utica v. Springs, Inc., Smith Richfield 58 repurchase agreement a stock not ex- from 113, Misc.2d 797, N.Y.S.2d 799 (Sup.Ct. 9, language of Article but the cluded Cty.1968). Oneida has been made that Code observation “[t]he The intent behind the filing requirements types for all the ‘no- permits of collateral has Article 9 recognition received from filing tice’ which New York has heretofore the federal courts as well. In In re Excel only permitted inventory for Uniform —the Stores, Inc., 341 F.2d (2d 1965), Cir. Act; Act; Receipts Trust Factors Lien Judge Medina noted that under pre-Code Act.” Mortgage the Dealer’s Chattel Coo- law, the slightest deviation from statutory How to Create Un- gan, Security Interests requirements often resulted in the invalida- L.Q. Why, der Code—And 48 Cornell security tion of interests. (1962) (footnotes omitted). 131, 150 See The result was the scrapping of the old Coogan, Suggested Analytical Ap- A also scheme, statutory which varied from proach to Article 9 of the Uniform Com- State, State to and the substitution Code, (1963). mercial 63 Colum.L.Rev. simple of a notice pur- sum, reading Code pose is only “give of which the mini- commentators leads the con- inescapably mum necessary information to put any that all clusion transactions intended to cre- searcher inquiry.” on security are subject ate interests filing requirements of which were Article Id. at Grandmont, 963. See also In re fully followed here. 968, 971 F.Supp. (D.Conn.1970). Any subse- quent clearly creditor was alerted fail any overreaching I further to find December 1970 between in the notice inequity employed. here corporation, Gold and the which stated, explicitly repurchase agreement giving Financing been exe rise “This Statement has interest. It was an pursuant agreement, to an dated De obvious cuted 16, 1970, lead to transaction cember between Charles Gold, *8 require Party, hardly investigative would tal- Secured ” . . Inc. . As stated in Beneficial ents Holmes or Inspector Sherlock Cadillac-Oldsmobile, v. Maigret Finance Co. Kurland to unearth. consignment obligation ed that and lease or intended as the fact is se-

contract itself security. apply This Article does not statu- cured a transaction or interest to which this apply.” tory except (emphasis supplied). liens 9-310. not in Section Article does (3) application of this Article to a securi- The exclusions 9-103 and not 9-104 are ty applicable in a secured is not affect- here. 874 N.Y.262, N.E. 169 Beguelin, Cross v. America, Appellee, UNITED obliga- STATES that the require not (1929) does by the stock

tion created v. enforceable valid and ment remain FLECHA, Appellant. Erasmus requires that the simply corporation. 1059, Docket 76-1099. No. have notice subsequent creditor Appeals, Court of United States was between The real issue transaction. Second Circuit. subsequent and the the stock the seller of there the court announced creditor and May 19, Argued the stock rule, seller of “The Decided June those of superior appear to be became who creditors of purchase by the notice of the

such with at N.Y.

corporation of its own stock.” 252 (emphasis supplied). at 169 N.E. had actual

While the creditor in Cross repurchase agreement,

knowledge of less something, majority concedes Here knowledge

than actual suffice. is creditor bound iden- the financial statement which creating

tified the transaction nothing in the Code

interest. There designate requires

the cases which “stock underlying arrangement as a As I indi-

repurchase agreement.” have

cated, transac- the nature important

tion is 9 of the Code —Article apply was intended to and all securi-

ty interests.

I conclude therefore Cross inap-

Code were satisfied here that it is engraft

propriate court to further requirements on Article which well-conceived, thoroughly studied and

all-embracive codification of state law.