1. If the coins are not classified as “goods,” what happens to the creditors’ rights?

2. What is the standard for determining when coins are goods?

On April 18, 2006, James W. Lull entered into a consignment agreement with Bowers and Merena for auction of his Standing Liberty quarter-dollar collection. On April 21, 2006, Bowers and Merena also agreed to loan to Lull $700,000, with the loan to be repaid from the auction proceeds. The collection sold at auction for $1,119,750. After repayment of its loan to Lull and expenses of sale, Bowers held net proceeds of $455,046.11. However, Gardiner, Kapaa 382, and Yamaguchi went to Bowers and Merena and tried to claim the auction proceeds.

Gardiner’s claim resulted from a March 1, 2005, loan to Lull for $3.8 million. Lull was unable to repay the loan when it became due on February 28, 2006, so in July 2006 Gardiner agreed not to take legal action to enforce the note after Lull executed a security agreement on July 19, 2006, which granted Gardiner a security interest in “all personal property and other assets” of Lull and specifically listed all commonly known categories of personal property, including goods, accounts, money, chattel paper, general intangibles, instruments, and the proceeds thereof.

Gardiner recorded a financing statement in the Bureau of Conveyances of the State of Hawaii on July 20, 2006. The financing statement described Gardiner’s collateral as “All assets and all personal property of the Debtor (including, without limitations, fixtures), whether now owned or hereafter acquired or arising, and wherever located, and all proceeds and products thereof.”

Kapaa 382 made short-term loans to Lull on September 20, 2005, for $933,000; on December 5, 2005, for $471,566.82; on December 15, 2005, for $165,000; and on December 19, 2005, for $400,000. On July 26, 2006, Lull executed a “Partial Settlement Agreement” in which he agreed, among other things, to “convey and transfer to [Kapaa 382] title to the Coin Collection currently consigned to Bowers and Merena Auctions, LLC for auction scheduled to occur in August 2006, by Bill of Sale[.]”

Kapaa 382 filed a financing statement with the California Secretary of State on August 22, 2006, but the financing statement listed Kapaa 382 as both the debtor and the secured party and did not mention Lull. On July 11, 2006, Lull executed an assignment of the proceeds of the coin auction to Yamaguchi for an unpaid promissory note, dated May 16, 2006, in the amount of $700,000. The assignment was not recorded.

On December 8, 2006, Lull filed a voluntary Chapter 7 petition. Claims in the bankruptcy case exceeded $55 million, including unsecured claims of nearly $42 million. The parties involved with the coins all claimed priority.

JUDICIAL OPINION

KING, Bankruptcy Judge … Kapaa 382 argues in opposition to the motion that Gardiner does not have a properly perfected security interest because the auctioned coins are “money” and the filing of a financing statement is insufficient to perfect a security interest in money under the Uniform Commercial Code (“UCC”).

Kapaa 382 argues that the filing of Gardiner’s financing statement did not perfect a security interest in the coins because the coins are “money,” and, under Haw.Rev.Stat. § 490:9-312(b)(3), “a security interest in money may be perfected only by the secured party’s taking possession[.]” Kapaa 382 has not had actual possession of the coins. Kapaa 382’s argument that the auctioned coins constitute “money” under Article 9 is not persuasive. Coins are not merely “money” where their market value far exceeds their face value. …………………