Appeal from the Superior Court of the District of Columbia; Hon., Henry H. Kennedy, Jr., Trial Judge
Wagner, Associates Judge, Newman, Senior Judge,* and Belson, Associate Judge, Retired.**
The opinion of the court was delivered by: Belson
This is an appeal from the trial court's ruling that the assignee of an account had an interest in the account that took priority over an Internal Revenue Service lien on the account. We hold that the financing statement filed by the assignee was insufficient to perfect its security interest because it did not correctly set forth the name of the assignor taxpayer. Therefore, we reverse.
Silverline Building and Maintenance Company contracted with the District of Columbia in December 1983 to perform janitorial services in two office buildings occupied by the District of Columbia. At approximately the same time, Silverline entered into a factoring arrangement with Thomas Funding Corporation in which Silverline assigned its right to payment pursuant to its contracts with the District to Thomas Funding in exchange for money Silverline received from Thomas Funding that Silverline used as working capital. Silverline notified the District of the assignment by letter and directed the District to make payments to Thomas Funding on Silverline's invoice to the District. This practice continued on a monthly basis through September 1984. In addition, Thomas Funding filed a financing statement with the Recorder of Deeds on January 4, 1984, covering "all now owned and hereafter acquired accounts, contract rights . . . general intangibles of the debtor." The financing statement, however, inadvertently identified the debtor as "Silvermine Building Maintenance Co.," mistakenly substituting the letter "m" for the second letter "l" in the word "Silverline." Until October 1984, the District had paid Thomas Funding the amount due Silverline under the janitorial service contracts.
In April and May of 1984, the Internal Revenue Service made assessments against Silverline for unpaid federal income taxes totaling $22,370.19. On October 5, 1984, the IRS filed a notice of tax lien against Silverline with the Recorder of Deeds and served the District with notice of tax levy against any property or rights to property belonging to Silverline. At that time, the District owed $18,747 on the janitorial service contracts for work performed during September 1984. Instead of paying the amount owed under the contracts to Thomas Funding, the District paid this amount to the IRS on January 1, 1985.
Thomas Funding brought suit against the District for the amount due under the Silverline contracts, $18,747. The District asserted in its answer that its honoring of the IRS levy discharged it of any obligation to Thomas Funding, but nevertheless filed a third-party complaint against the United States. The trial court granted the United States's motion to dismiss because the nine-month statute of limitations for a suit for wrongful payment to the IRS had run. On cross motions for summary judgment, the trial court awarded Thomas Funding $18,747, plus costs and post-judgment interest. The trial court found that Silverline had no property rights in the assigned accounts, but instead its rights had been transferred to Thomas Funding. Furthermore, the trial court concluded that the misspelling of the debtor's name in the financing statement was a minor error, which could not have misled the District because the District had actual notice of the assignment.
Before we can decide whether a tax lien against Silverline attached to accounts receivable due Silverline from the District, we must first determine whether Silverline owned the property or had rights to the property. 26 U.S.C. § 6321 (1988). Whether a taxpayer has an interest in property is determined by state law. United States v. National Bank of Commerce, 472 U.S. 713, 722, 105 S. Ct. 2919, 86 L. Ed. 2d 565, 56 A.F.T.R.2d (P-H) 5210 (1985); Aquilino v. United States, 363 U.S. 509, 513, 80 S. Ct. 1277, 4 L. Ed. 2d 1365, 5 A.F.T.R.2d (P-H) 1698 (1960).
The law of the District of Columbia has recognized generally that parties to contracts may assign their contractual rights. Flack v. Laster, 417 A.2d 393, 399 (D.C. 1980) ("The right to assign is presumed, based upon principles of unhampered transferability of property rights and of business convenience.") However, most assignments of accounts are governed by Article 9 of the District of Columbia's Uniform Commercial Code. D.C. Code § 28:9-101 to 28:9-507 (1981 & Supp. 1990). The United States Court of Appeals for the District of Columbia Circuit, applying District of Columbia law, has held that when the Uniform Commercial Code does not apply to a particular situation, general contract principles govern. G & R Corp. v. American Sec. & Trust Co., 173 U.S. App. D.C. 215, 222, 523 F.2d 1164, 1171 (1975); see also Goldstein v. S & A Restaurant Corp., 622 F. Supp. 139, 142 n.5 (D.D.C. 1985); D.C. Code § 28:1-103 (1981). Thus, we must determine whether the assignment between Silverline and Thomas Funding is one included under Article 9 of the Code and, if so, what results from the application of Article 9 to the transaction involved here.
Thomas Funding contends that Article 9 does not apply to the transaction between it and Silverline because the transaction effected a sale of Silverline's entire interest in the accounts rather than the creation of a security interest. However, Article 9 applies not only to any transaction which is intended to create a security interest in accounts, but also to any sale of accounts. *fn1 D.C. Code § 28:9-102(1) (Supp. 1990). The drafters of the Uniform Commercial Code expressed concern that transactions involving the sale of accounts would be indistinguishable from transactions involving accounts as security, and thus they included both types of transactions within the scope of Article 9:
An assignment of accounts . . . as security for an obligation is covered by subsection (1)(a) [of section 9-102]. Commercial financing on the basis of accounts . . . is often so conducted that the distinction between a security transfer and a sale is blurred, and a sale of is therefore covered by subsection (1)(b) [of section 9-102] whether intended for security or not, unless excluded by Section 9-104. The buyer then is treated as a secured party, and his interest as a security interest.
UNIF. COMMERCIAL CODE § 9-102, 3 U.L.A. 76, 79 (1972) (official comment 2) (emphasis added). Certain transactions involving accounts are excluded from the scope of Article 9 because, by their nature, they have nothing to do with commercial financing transactions. UNIF. COMMERCIAL CODE § 9-104, 3 U.L.A. 143, 147 (1972) (official comment 6). Those transactions excluded from the scope of Article 9 are the sales of accounts as part of a sale of a business, an assignment of an account for the purpose of collection only, a transfer of a right to payment to one who is also obligated to perform under the contract, and a transfer of a single account in satisfaction of a pre-existing debt. D.C. Code § 28:9-104 (f) (Supp. 1990).
The assignment of accounts in the case at hand was part of a factoring arrangement, a frequently used means of commercial financing that the drafters of the Uniform Commercial Code clearly contemplated would fall within the scope of Article 9. Because we find that the assignment of accounts is within the scope of Article 9, we must ...