Source: http://law.missouri.edu/freyermuth/art9/fall2012/Q&A2012/assignment15.html
Timestamp: 2015-12-02 05:09:27
Document Index: 50963994

Matched Legal Cases: ['§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9']

Fall 2012: Q&A for Assignment 15
Question/Answer for Assignment 15
A number of good questions arose after class today.
1. What if Secured Party files a continuation statement, within the
appropriate six-month window period, but the filing officer loses it or misindexes it? Does the initial financing statement then lapse, or does it remain
effective for an additional five years?
The same rule applies for the filing of a continuation statement as
for the filing of an initial financing statement: if the secured party presents
the filing in the appropriate form with the filing fee, or the filing officer
accepts it, it is filed. § 9-516(a). If the filing officer misindexes
it, that doesn't defeat its effectiveness. § 9-517.
This would be a big problem, of course, for subsequent searchers. Once the five-year period
of effectiveness of the initial financing statement lapses, the filing will
probably be "cleared out" of the system, because the filing officer's records
won't have accurately shown that filing as having been continued. Thus, searchers
may wrongly conclude that there are no longer any effective financing statements
on the record. However, as long as the secured party can prove the continuation
statement was accepted for filing (the secured party would've gotten a copy/receipt
at the time it was presented for filing), the secured party's interest would
remain perfected with its priority dating from the time of the initial UCC-1 filing.
Again, I think this is a result that is questionable from a policy perspective. The filer in this position is clearly the cheaper cost avoider; it isn't that hard for the filer to "check back" and confirm that the continuation statement was properly linked to the initial financing statement and correctly indexed. By contrast, the subsequent searcher cannot find a filing that is no longer in the system. Nevertheless, the text of sections 9-516 and 9-517 are crystal clear on this point, so whether I dislike the result doesn't mean much.
2. If the collateral was timber to be cut, so the Secured Party had to make a
real-property-related filing in the county recorder of deeds office, as required in § 9-502(b), would the Secured Party have to file a continuation statement
if the loan was for longer than 5 years?
A real-property-related filing is only
good for 5 years, even though it is being filed in the real property records
and not the UCC records, so it would have to be continued. There are only three situations in which a UCC filing can be valid for more than 5 years without a proper continuation, and all are specialized transactions: (1) a "public finance" transaction (a secured transaction in which the debtor is a government entity such as a municipality or municipal agency that is issuing debt securities such as revenue bonds that have a maturity of 20 years or more and are being secured by payment intangibles); (2) a manufactured-home transaction (where the debtor grants a PMSI on a manufactured home in which the debtor is living); and (3) where the debtor is a "transmitting utility" (like Ameren). A UCC-1 filed in a public finance transaction or in a manufactured home transaction is effective for 30 years, because of the long-term nature of those transactions. § 9-515(b). Where the debtor is a transmitting utility, and the UCC-1 so indicates, the UCC-1 remains effective until it is terminated (i.e., it has no inherent duration of effectiveness). § 9-515(f). Where the collateral is just timber, the Secured Party would have to file a timely continuation statement to continue the effectiveness of the initial financing statement.
in § 9-515(g) that would allow the secured party to take a "mortgage"
on the timber and record the mortgage in the real property records, and that recording would remain effective
until the debt was paid off. But if the secured party instead just makes only a real-property-related financing statement as that term is defined in § 9-502(b), that filing will be effective
only for five years and will need to be continued if the loan is to be outstanding
for more than five years and the secured party wants to maintain its priority as of the date of the original filing.
3. Regarding Question 2 in Problem Set 15. I understand that if Crockett Bank's security interest lapses, they are no longer perfected. But under § 9-322(a)(3), I thought Crockett would still have priority over First Bank because neither party had a perfected interest and Crockett's security interest would have been the first to attach. Does First Bank's levying on the paintings constitute perfection so as to take them out of § 9-322(a)(3) and give them first to file or perfect priority? Or are they allowed to set aside Crockett's unperfected security interest as a lien creditor?
The latter. In Problem 2, First Bank doesn’t have a security interest at all. Its only possible claim would be as a lien creditor, if the sheriff levies on the art collection. If that happens, we would have a secured party (Crockett) vs. lien creditor (First Bank) dispute. § 9-322(a)(3) doesn’t apply to that dispute. § 9-322(a)(3) would apply only if the priority dispute involved two secured parties who both had unperfected security interests.
Instead, in Problem 2, it is secured party vs. lien creditor, which is governed by § 9-317(a)(2). If First Bank levies while Crockett’s UCC-1 filing is still effective (before it has lapsed), then Crockett maintains its priority under § 9-201(a) because § 9-317(a)(2)(A) will not subordinate its interest to First Bank’s judgment lien — because Crockett’s security interest was perfected prior to and at the time of First Bank’s levy.
By contrast, if First Bank doesn’t levy until AFTER Crockett’s UCC-1 filing lapses, then First Bank will have priority, because upon lapse, Crockett’s SI is unperfected [§ 9-515(c)], and thus at the time First Bank’s judgment lien arises upon levy, Crockett’s security interest is unperfected and thus is subordinated to First Bank’s judgment lien under § 9-317(a)(2)(A).
4. I'm confused by your explanation of Problem 1 in class today. As I read § 9-515(c), the last sentence says that "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." So in Problem 1, if PCB had never filed the second financing statement, and the first one had lapsed, then at that point, obviously PCB would be "unperfected" after the lapse and it would be deemed never to have been perfected as against Church when it bought the dishwasher from the Debtor.
But on the facts in the problem, PCB did file the second financing statement. It wasn't effective to continue the 2008 financing statement, but it was effective to perfect the security interest, and so when the 2008 statement lapsed, PCB's perfection wouldn't lapse. So why would the third sentence apply? It seems to me from reading the sentence, that in that case PCB would not be subject to "retroactive loss of perfection" and thus it would still have priority over Church (i.e., it would still have a perfected security interest in the dishwasher). What am I missing?
This is a good question, and to some extent the confusion is understandable. When you read the last sentence of § 9-515(c), you have to read it as a continuation of the immediately preceding sentence, which says "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, unless the security interest is perfected otherwise." What this latter clause means is "unless the security interest is perfected other than by filing." In this sense, § 9-515(c) has to be understood like § 9-308(c), which says "A security interest or agricultural lien is perfected continuously if it is originally perfected by one method under this article and is later perfected by another method under this article, without an intermediate period when it was unperfected." As the comments to § 9-308 make clear, § 9-308(c) is designed to address the situation where a secured party might initially be perfected by possession, but then releases the collateral to the debtor but only after first filing a financing statement. § 9-308, comment 4. In that situation, the secured party would be continuously perfected and its priority would relate back to the date on which it first took possession (when it first perfected), even though its UCC-1 filing would have been on a later date.
In Problem 1, however, § 9-308(c) can't help PCB. If the September 2012 financing statement was good enough to make PCB continuously perfected back to April 1, 2008 — even after that April 1, 2008 filing isn't properly continued and lapses — then it essentially renders § 9-515's "five-year" effectiveness and the continuation requirement completely moot. Why file a continuation statement if I can just accomplish exactly the same thing by filing a new UCC-1? But that would defeat the whole operation of the filing system. If PCB's 2008 filing drops out of the system after 5 years, how am I supposed to know about it based on a September 2012 UCC-1 filing that doesn't reference that 2008 filing? The only way later buyers/secured parties can know that PCB has staked its priority back to April 1, 2008 is if PCB properly continues the 2008 filing (or if it cures the ostensible ownership problem by taking possession of the collateral prior to lapse).
So you have to distinguish here between "continuous perfection with continuing priority back to the time of the original perfection" and just never being unperfected. In Problem 1, it is true that there was never a time when PCB's security interest wasn't perfected by a filed financing statement, in general terms. Even if the April 1, 2008 UCC-1 lapses for lack of a proper continuation after April 1, 2013, PCB's security interest in the dishwasher (if it still had one) and its security interest in its other collateral would continue to be perfected by the September 2012 UCC-1 filing. But its priority will not relate back to April 1, 2008; instead, it will relate back only to September 2012. What PCB wanted was continuous perfection with priority relating back to April 1, 2008. The only way to get that is to (a) properly continue the April 1, 2008 filing by filing a proper continuation statement, or (b) to take possession of the dishwasher before April 1, 2013, when the initial financing statement lapses. That's the only way it can get continuous perfection with priority dating from April 1, 2008.
If it does neither — if it instead just relies on the new September 2012 UCC-1 — then the lapse of the April 1, 2008 financing statement will mean that as against Church (the purchaser of the dishwasher before lapse), IT IS AS IF THE APRIL 1, 2008 FILING NEVER HAPPENED. PCB may have a new UCC-1 on record as of September 2012. But its security interest in the dishwasher is deemed to have been unperfected prior to that September 2012 filing — and prior to that filing, if Church paid value and took possession of the dishwasher without knowledge of PCB's security interest, then Church takes free of that security interest (which is deemed to have been unperfected under § 9-515(c)) under § 9-317(b) (buyer not in ordinary course of business that gives value and takes possession of goods without knowledge of security interest and before it is perfected takes free of that security interest).
For what it's worth, the situation in Problem 1 is taken from the facts of In re Hilyard Drilling Co., 840 F.2d 596 (8th Cir. 1988). In that circumstance, National Bank of Commerce (NBC) had a security interest in all of Debtor's accounts (present and after-acquired), perfected by an April 1979 financing statement. In June 1983, the Debtor granted another security interest in its accounts to Worthen Bank, which filed a UCC-1 in June 1983. In July 1983, NBC filed a brand new UCC-1 covering Debtor's accounts, but it never properly continued the April 1979 financing statement. Eventually, the April 1979 financing statement lapsed. The court held that Worthen Bank had priority over NBC with respect to Debtor's accounts:
NBC argues that even if its July 8, 1983 financing statement is not considered a continuation statement, its security interest is first in priority because it was continuously perfected from April 26, 1979, pursuant to [§ 9-308(c) and § 9-322(a)(1)] .... [Note: the citations in the actual opinion were to the pre-2000 sections of pre-revision Article 9. To avoid confusion, I've used the renumbered sections of revised Article 9 and placed them in brackets in lieu of the citations to pre-2000 Article 9 sections. The text of the relevant provisions was the same before and after the revision; just the section numbers were changed.]
To interpret [§ 9-308(c)] as providing that a security interest can be continuously perfected by consecutively filed financing statements contradicts the express language of [§ 9-515(c).] [§ 9-308(c)] is applicable to security interests that are originally perfected in one way and then subsequently perfected in some other way, without an intermediate unperfected period. NBC, which initially perfected by filing, subsequently perfected in the same way, by filing, as opposed to "in some other way" as required by the statute. [§ 9-308(c)] is inapplicable to NBC's security interest in Hilyard's accounts receivable....
Worthen's security interest had first priority pursuant to [§ 9-322(a)(1)]. NBC's April 26, 1979 financing statement lapsed due to its failure to file a continuation statement, leaving the underlying security interest unperfected. [§ 9-515(c).] Following the lapse, the other perfected security interests in Hilyard's accounts receivable advanced in priority. Of the remaining perfected security interests, Worthen's interest had priority because it was first in time of filing or perfection.