THIRD DIVISION

BARNES, P. J.,

BOGGS and BRANCH, JJ.

NOTICE: Motions for reconsideration must be

physically received in our clerk’s office within ten

days of the date of decision to be deemed timely filed.

http://www.gaappeals.us/rules/

March 30, 2015

In the Court of Appeals of Georgia

A14A1677. THE FOUR COUNTY BANK v. TIDEWATER

EQUIPMENT CO. 

BRANCH, Judge.

In June 2003 and November 2005 respectively, appellant The Four County

Bank (“the Bank”) provided financing for the purchase of two different pieces of

foresting equipment byShepherdBrothers Timber Company, LLC (“Shepherd”). The

Bank perfected its security interests in both pieces of equipment by filing financing

statementsin Wilkinson County Superior Court. While the Bank’s original financing

statements were still effective, Shepherd sold both pieces of equipment to appellee

Tidewater Equipment Company (“Tidewater”), which later resold them. In October

2008 and March 2011, more than five years after the filing of each of the original

financing statements, the Bank attempted to file continuation statements as to the
equipment. After Shepherd declared bankruptcy, the Bank sued Tidewater to recover

the equipment or its value. On appeal from the trial court’s grant of summary

judgment to Tidewater, the Bank argues that Tidewater is liable for the value of the

equipment because Tidewater should have known of the Bank’s perfected security

interest at the time Tidewater resold the equipment. We disagree and affirm. 

Although we view the record in favor of the Bank as the non-movant, the

relevant facts are not in dispute. The Bank filed a purchase money financing

statement as to Shepherd’s 2003 Tigercat Cutter on June 5, 2003, and a purchase

money financing statement as to Shepherd’s 2005 Tigercat Skidder, a piece of

construction equipment, on November 18, 2005. On August 30, 2007, Tidewater

accepted the Cutter from Shepherd as a trade-in worth $52,500 towards Shepherd’s

purchase of a new piece of equipment; Tidewater resold the used Cutter to a third

party the same day. On June 26, 2008, Tidewater accepted the Skidder fromShepherd

as a trade-in worth at least $47,000 towards Shepherd’s purchase of a second new

piece of equipment; Tidewater sold the used Skidder to a third party on May 9, 2009.

Tidewater did not perform any lien search before accepting the Tigercats, neither of

which were required to have a motor vehicle title. The Bank did not receive any

proceeds from either sale. 

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On October 31, 2008, the Bank filed a second financing statement as to the

Cutter; on March 10, 2011, the Bank filed a second financing statement as to the

Skidder. Shepherd filed for bankruptcy in the Middle District of Georgia on March

16, 2011. In September 2012, the Bank sued Tidewater for trover and conversion.

Both sides moved for summary judgment, which the trial court granted to Tidewater

because the Bank had failed to file timely continuation statements and because

Tidewater lacked actual knowledge of the Bank’s security interests. This appeal

followed. 

1. The Bank first asserts that the trial court erred when it granted Tidewater

summary judgment because the Bank’s security interests were perfected at the time

Tidewater took possession of the equipment. We disagree.

OCGA § 11-9-515, Georgia’s version of Article 9, Section 515 of the Uniform

Commercial Code (UCC), provides in relevant part as follows:

(a) Five-year effectiveness. Except as otherwise provided in subsection

(d) of this Code section [concerning the effects of filing continuation

statements], a filed financing statement is effective for a period of five

years after the date of filing or until the twentieth day after any earlier

maturity date required to be specified on the filed financing statement.

(b) Lapse and continuation of financing statement. The effectiveness of

a filed financing statement lapses on the expiration of the period of its

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effectiveness unless before the lapse a continuation statement is filed

pursuant to subsection (c) of this Code section. Upon lapse, a financing

statement ceases to be effective and any security interest or agricultural

lien that was perfected by the financing statement becomes unperfected,

unlessthe security interest is perfected otherwise. If the security interest

or agricultural lien becomes unperfected upon lapse, it is deemed never

to have been perfected as against a purchaser of the collateral for

value.

(c) When continuation statement may be filed. A continuation statement

may be filed only within six months before the expiration of the

five-year period specified in subsection (a) of this Code section or the

occurrence of any earlier maturity date required to be specified on a filed

financing statement.

(Emphasis supplied.)1

1 UCC Article 9, former Section 403 (2), codified at former OCGA § 11-9-403

(2), provided that with exceptions not applicable here,

a filed financing statement is effective for a period of five yearsfrom the

date of filing. . . . [T]he effectiveness of a filed financing statement

lapses on the . . . expiration of the five-year period . . . unless a

continuation statement is filed prior to the lapse. . . . Upon lapse the

security interest becomes unperfected, unless it is perfected without

filing. If the security interest becomes unperfected upon lapse, it is

deemed to have been unperfected as against a person who became a

purchaser or lien creditor before lapse. 

(Emphasis supplied.)

Former OCGA § 11-9-403 was superseded by Article 9’s new Section 515,

codified at OCGA § 11-9-515, on July 1, 2001. See Ga. L. 2001, p. 362, § 1. As the

2002 editors’ comment to Section 515 notes, “[t]he deemed retroactive unperfection

applies only with respect to purchasers for value; unlike former Section 9-403 (2), it

does not apply with respect to lien creditors.” Comment, Uniform Commercial Code

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Here, although the Bank had perfected its security interests in both pieces of

equipment by filing financing statements which remained effective at the time

Tidewater took possession of the equipment, the Bank failed to file continuation

statements in the “six months before the expiration of the five-year period” running

from the date of each original financing statement. OCGA § 9-11-515 (c). OCGA §

11-9-515 (b) provides, moreover, that once each of the Bank’s security interests had

lapsed for failure to file a timely continuation statement, those interests “bec[ame]

unperfected upon lapse,” and were “deemed never to have been perfected as against

a purchaser of the collateral for value.” (Emphasis supplied.) It follows that even

though the Bank’s security interests in the equipment were perfected in the first

instance by the filing of the original financing statements, and though they remained

so throughout Tidewater’s possession and disposition of the equipment, those same

security interests were deemed never to have been perfected as against a purchaser

for value when the Bank failed to file timely continuation statements. See Kubota

§ 9-515, n. 3. The Bank has not asserted that Tidewater could be held a lien creditor

such that the “deemed retroactive unperfection” of the Bank’s previous security

interest would not occur here. The new version of the statute also imposes “a new

burden on the secured party: to be sure that a financing statement does not lapse

during the debtor’s bankruptcy.” Id., n. 4. It is this burden that the Bank has failed to

carry.

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Tractor Corp. v. C & S Nat. Bank, 198 Ga. App. 830, 831 (2) (403 SE2d 218) (1991)

(a security interest that lapsed due to the secured party’s failure to file a continuation

statement was deemed unperfected “‘as against a person who became a purchaser .

. . before lapse,’” quoting former OCGA § 11-9-403 (2)); see also Thermal Supply v.

Big Sky Beef, 346 Mont. 341, 347 (195 P3d 1227) (2008) (under UCC Article 9,

Section 515, to hold that “any perfected security interest” a secured creditor “may

have held at the time it initiated” its suit against the debtor “lapsed due to [the

creditor’s]failure to timely file a continuation statement”); LB Folding Co. v. GergelKellem Corp., 94 Ohio App. 3d 511, 516 (641 NE2d 222) (1994) (under UCC former

Article 9, Section 403 (2), a lapse of creditor’s security interest related back to time

of purchase by purchaser for value, whose interest was superior to that of the

previously secured creditor).

2. The only question remaining isthus whether Tidewater was a “purchaser for

value” such that it took possession of the equipment free of the Bank’s security

interests once they lapsed. OCGA § 9-11-515 (b). The Bank asserts that because

Tidewater could have discovered the Bank’s then-perfected security interests on file

in the local superior court at the time it purchased each of the Tigercats, Tidewater

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(a) was not a “purchaser for value” and (b) should be held liable for converting the

equipment to its own use. We disagree. 

(a) OCGA § 11-9-317 (b) providesthat with exceptions not argued as applying

here, 

a buyer, other than a secured party, of tangible chattel paper, tangible

documents, goods, instruments, or a certificated security takes free of a

security interest or agricultural lien if the buyer gives value and

receives delivery of the collateral without knowledge of the security

interest or agricultural lien and before it is perfected. 

(Emphasis supplied.) See LB Folding, 94 Ohio App. 3d at 516 (interest of purchaser

for value without actual knowledge wassuperior to secured creditor who failed to file

a continuation statement). The UCC’s general provisions also specify that “[a] person

‘knows’ or has ‘knowledge’ of a fact when the person has actual knowledge of it.”

OCGA § 11-1-201 (25); see also Bank of Dawson v. Worth Gin Co., 295 Ga. App.

256, 258 (671 SE2d 279) (2008) (under Georgia’s version of the UCC, a person has

“knowledge” of a fact “when he has actual knowledge of it”) (punctuation and

footnote omitted). 

The Bank’s arguments for a judicially crafted exception to the UCC’s actual

knowledge requirement have no basisin Georgia law. The Bank concedesthat neither

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piece of equipment ever had a motor vehicle title that would have provided Tidewater

with actual notice of anyone holding a security interest on the title’s face, and we

have been cited no evidence that Tidewater ever had any other “actual knowledge”

of the existence of the Bank’s security interest, OCGA § 11-1-201 (25). Rather, with

no such evidence, Tidewater accepted both pieces of equipment in exchange for

credit towards Shepard’s new purchases, with the result that Tidewater “takes free”

of that security interest as a “buyer” who gave value, in the form of credit, for both

Tigercats. OCGA § 11-9-317 (b);see also LB Folding, 94 Ohio App. 3d at 519 (when

creditor’ssecurity interest became “unperfected” asto a prelapse purchaser for value,

the purchaser’s “right to the collateral” was rendered “superior to” the creditor’s).

(b) Further, because Tidewater took the equipment as a purchaser for value

“free and clear of the [Bank’s] previously secured interest,” Tidewater cannot be said

to have wrongfully converted the equipment to its own use. See Hanley Implement

Co. v. Riesterer Equip., 150 Wis. 2d 161, 170 (1989) (under former Article 9, Section

403 (2), a creditor who failed to file a continuation statement was deemed never to

have perfected itssecurity interest as against a prelapse purchaser, with the result that

the purchaser could not be held to have converted the property). The Bank’s citations

to cases involving converters rather than purchasers for value are thus inapposite. 

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3. The Bank’s last argument against what it perceives as the “harsh” result we

have reached is that in light of the UCC’s requirement that all parties to secured

transactionslike the one at issue here are bound to act in good faith, Tidewater should

have performed a search for a financing statement before selling either of the

Tigercats. See OCGA § 11-1-203 (“Every contract or duty within this title imposes

an obligation of good faith in its performance or enforcement”). We disagree, for two

reasons. First, as we have already explained, in the absence of any evidence that

either piece of equipment at issue was or should have been registered as a motor

vehicle, and without any actual knowledge of any existing security interests in the

Tigercats, Tidewater had no duty to investigate whether such interests existed.

Second, and as other courts have noted as they held security interests to have been

deemed unperfected for failure to file a timely continuation statement:

“Although strict adherence to the Code requirements may at times lead

to harsh results, efforts by courts to fashion equitable solutions for

mitigation of hardships experienced by creditorsin the literal application

of statutory filing requirements may have the undesirable effect of

reducing the degree of reliance the market place should be able to place

on the Code provisions. The inevitable harm doubtless would be more

serious to commerce than the occasional harshness from strict

obedience.”

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Thermal Supply, 346 Mont. at 347, quoting Sec. Nat. Bank & Trust Co. of Norman

v. Dentsply Professional Plan, 1980 Okla. 136 (617 P2d 1340, 1343 (I)) (1980)

(applying former Article 9, Section 403 (2)). 

For all these reasons, the trial court did not err when it granted Tidewater

summary judgment as to the Bank’s claims. We thus need not reach the Bank’s

contention that it should have been granted summary judgment. 

Judgment affirmed. Barnes, P. J., and Boggs, J., concur.

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