                      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
