2023 District of Columbia Code › Title 28 - Commercial Instruments and Transactions. [Enacted title] › Subtitle I - Uniform Commercial Code › Article 9 - Secured Transactions › Part III - Perfection and Priority › Subpart 2 - Perfection › § 28:9–316. Effect of change in governing law

§ 28:9–316. Effect of change in governing law.
(a) A security interest perfected pursuant to the law of the jurisdiction designated in § 28:9-301(1) or 28:9-305(c) remains perfected until the earliest of:
(1) The time perfection would have ceased under the law of that jurisdiction;
(2) The expiration of 4 months after a change of the debtor’s location to another jurisdiction; or
(3) The expiration of one year after a transfer of collateral to a person that thereby becomes a debtor and is located in another jurisdiction; or
(b) If a security interest described in subsection (a) becomes perfected under the law of the other jurisdiction before the earliest time or event described in that subsection, it remains perfected thereafter. If the security interest does not become perfected under the law of the other jurisdiction before the earliest time or event, it becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
(c) A possessory security interest in collateral, other than goods covered by a certificate of title and as-extracted collateral consisting of goods, remains continuously perfected if:
(1) The collateral is located in one jurisdiction and subject to a security interest perfected under the law of that jurisdiction;
(2) Thereafter the collateral is brought into another jurisdiction; and
(3) Upon entry into the other jurisdiction, the security interest is perfected under the law of the other jurisdiction.
(d) Except as otherwise provided in subsection (e), a security interest in goods covered by a certificate of title which is perfected by any method under the law of another jurisdiction when the goods become covered by a certificate of title from the District remains perfected until the security interest would have become unperfected under the law of the other jurisdiction had the goods not become so covered.
(e) A security interest described in subsection (d) becomes unperfected as against a purchaser of the goods for value and is deemed never to have been perfected as against a purchaser of the goods for value if the applicable requirements for perfection under § 28:9-311(b) or 28:9-313 are not satisfied before the earlier of:
(1) The time the security interest would have become unperfected under the law of the other jurisdiction had the goods not become covered by a certificate of title from the District; or
(2) The expiration of 4 months after the goods had become so covered.
(f) A security interest in deposit accounts, letter-of-credit rights, or investment property which is perfected under the law of the bank’s jurisdiction, the issuer’s jurisdiction, a nominated person’s jurisdiction, the securities intermediary’s jurisdiction, or the commodity intermediary’s jurisdiction, as applicable, remains perfected until the earlier of:
(1) The time the security interest would have become unperfected under the law of that jurisdiction; or
(2) The expiration of 4 months after a change of the applicable jurisdiction to another jurisdiction.
(g) If a security interest described in subsection (f) becomes perfected under the law of the other jurisdiction before the earlier of the time or the end of the period described in that subsection, it remains perfected thereafter. If the security interest does not become perfected under the law of the other jurisdiction before the earlier of that time or the end of that period, it becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
(h) The following rules apply to collateral to which a security interest attaches within 4 months after the debtor changes its location to another jurisdiction:
(1) A financing statement filed before the change pursuant to the law of the jurisdiction designated in § 28:9-301(1) or § 28:9-305(c) is effective to perfect a security interest in the collateral if the financing statement would have been effective to perfect a security interest in the collateral had the debtor not changed its location.
(2) If a security interest perfected by a financing statement that is effective under paragraph (1) of this subsection becomes perfected under the law of the other jurisdiction before the earlier of the time the financing statement would have become ineffective under the law of the jurisdiction designated in § 28:9-301(1) or § 28:9-305(c) or the expiration of the 4-month period, it remains perfected thereafter. If the security interest does not become perfected under the law of the other jurisdiction before the earlier time or event, it becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
(i) If a financing statement naming an original debtor is filed pursuant to the law of the jurisdiction designated in § 28:9-301(1) or § 28:9-305(c) and the new debtor is located in another jurisdiction, the following rules apply:
(1) The financing statement is effective to perfect a security interest in collateral acquired by the new debtor before, and within 4 months after, the new debtor becomes bound under § 28:9-203(d), if the financing statement would have been effective to perfect a security interest in the collateral had the collateral been acquired by the original debtor.
(2) A security interest perfected by the financing statement and which becomes perfected under the law of the other jurisdiction before the earlier of the time the financing statement would have become ineffective under the law of the jurisdiction designated in § 28:9-301(1) or § 28:9-305(c) or the expiration of the 4-month period remains perfected thereafter. A security interest that is perfected by the financing statement but which does not become perfected under the law of the other jurisdiction before the earlier time or event becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
(Oct. 26, 2000, D.C. Law 13-201, § 101, 47 DCR 7576; May 1, 2013, D.C. Law 19-302, § 2(f), 60 DCR 2688.)
Section References
This section is referenced in § 28:9-310, § 28:9-311, § 28:9-313, § 28:9-320, and § 28:9-326.
Effect of Amendments
The 2013 amendment by D.C. Law 19-302 substituted “Effect of” for “Continued perfection of security interest following” in the section heading; and added (h) and (i).
Editor's Notes
Applicability of D.C. Law 19-302: Section 4 of D.C. Law 19-302 provided that the act shall apply as of July 1, 2013.
Uniform Commercial Code Comment
1. Source. Former Section 9-103(1)(d), (2)(b), (3)(e), as modified.
2. Continued Perfection. This section deals with continued perfection of security interests that have been perfected under the law of another jurisdiction. The fact that the law of a particular jurisdiction ceases to govern perfection under Sections 9-301 through 9-307 does not necessarily mean that a security interest perfected under that law automatically becomes unperfected. To the contrary: This section generally provides that a security interest perfected under the law of one jurisdiction remains perfected for a fixed period of time (four months or one year, depending on the circumstances), even though the jurisdiction whose law governs perfection changes. However, cessation of perfection under the law of the original jurisdiction cuts short the fixed period. The four-month and one-year periods are long enough for a secured party to discover in most cases that the law of a different jurisdiction governs perfection and to reperfect (typically by filing) under the law of that jurisdiction. If a secured party properly reperfects a security interest before it becomes unperfected under subsection (a), then the security interest remains perfected continuously thereafter. See subsection (b).
Example 1: Debtor is a general partnership whose chief executive office is in Pennsylvania. Lender perfects a security interest in Debtor’s equipment by filing in Pennsylvania on May 15, 2002. On April 1, 2005, without Lender’s knowledge, Debtor moves its chief executive office to New Jersey. Lender’s security interest remains perfected for four months after the move. See subsection (a)(2).
Example 2: Debtor is a general partnership whose chief executive office is in Pennsylvania. Lender perfects a security interest in Debtor’s equipment by filing in Pennsylvania on May 15, 2002. On April 1, 2007, without Lender’s knowledge, Debtor moves its chief executive office to New Jersey. Lender’s security interest remains perfected only through May 14, 2007, when the effectiveness of the filed financing statement lapses. See subsection (a)(1). Although, under these facts, Lender would have only a short period of time to discover that Debtor had relocated and to reperfect under New Jersey law, Lender could have protected itself by filing a continuation statement in Pennsylvania before Debtor relocated. By doing so, Lender would have prevented lapse and allowed itself the full four months to discover Debtor’s new location and refile there or, if Debtor is in default, to perfect by taking possession of the equipment.
Example 3: Under the facts of Example 2, Lender files a financing statement in New Jersey before the effectiveness of the Pennsylvania financing statement lapses. Under subsection (b), Lender’s security interest is continuously perfected beyond May 14, 2007, for a period determined by New Jersey’s Article 9.
Subsection (a)(3) allows a one-year period in which to reperfect. The longer period is necessary, because, even with the exercise of due diligence, the secured party may be unable to discover that the collateral has been transferred to a person located in another jurisdiction.
Example 4: Debtor is a Pennsylvania corporation. Lender perfects a security interest in Debtor’s equipment by filing in Pennsylvania. Debtor’s shareholders decide to “reincorporate” in Delaware. They form a Delaware corporation (Newcorp) into which they merge Debtor. The merger effectuates a transfer of the collateral from Debtor to Newcorp, which thereby becomes a debtor and is located in another jurisdiction. Under subsection (a)(3), the security interest remains perfected for one year after the merger. If a financing statement is filed in Delaware against Newcorp within the year following the merger, then the security interest remains perfected thereafter for a period determined by Delaware’s Article 9.
Note that although Newcorp is a “new debtor” as defined in Section 9-102, the application of subsection (a)(3) is not limited to transferees who are new debtors. Note also that, under Section 9-507, the financing statement naming Debtor remains effective even though Newcorp has become the debtor.
This section addresses security interests that are perfected (i.e., that have attached and as to which any required perfection step has been taken) before the debtor changes its location. As the following example explains, this section does not apply to security interests that have not attached before the location changes.
Example 5: Debtor is a Pennsylvania corporation. Debtor grants to Lender a security interest in Debtor’s existing and after-acquired inventory. Lender perfects by filing in Pennsylvania. Debtor’s shareholders decide to “reincorporate” in Delaware.
They form a Delaware corporation (Newcorp) into which they merge Debtor. By virtue of the merger, Newcorp becomes bound by Debtor’s security agreement. See Section 9-203. After the merger, Newcorp acquires inventory to which Lender’s security interest attaches. Because Newcorp is located in Delaware, Delaware law governs perfection of a security interest in Newcorp’s inventory. See Sections 9-301, 9-307. Having failed to perfect under Delaware law, Lender holds an unperfected security interest in the inventory acquired by Newcorp after the merger. The same result follows regardless of the name of the Delaware corporation (i.e., even if the Delaware corporation and Debtor have the same name). A different result would occur if Debtor and Newcorp were incorporated in the same state. See Section 9-508, Comment 4.
3. Retroactive Unperfection. Subsection (b) sets forth the consequences of the failure to reperfect before perfection ceases under subsection (a): the security interest becomes unperfected prospectively and, as against purchasers for value, including buyers and secured parties, but not as against donees or lien creditors, retroactively. The rule applies to agricultural liens, as well. See also Section 9-515 (taking the same approach with respect to lapse). Although this approach creates the potential for circular priorities, the alternative - retroactive unperfection against lien creditors - would create substantial and unjustifiable preference risks.
Example 6: Under the facts of Example 4, six months after the merger, Buyer bought from Newcorp some equipment formerly owned by Debtor. At the time of the purchase, Buyer took subject to Lender’s perfected security interest, of which Buyer was unaware. See Section 9-315(a)(1). However, subsection (b) provides that if Lender fails to reperfect in Delaware within a year after the merger, its security interest becomes unperfected and is deemed never to have been perfected against Buyer. Having given value and received delivery of the equipment without knowledge of the security interest and before it was perfected, Buyer would take free of the security interest. See Section 9-317(b).
Example 7: Under the facts of Example 4, one month before the merger, Debtor created a security interest in certain equipment in favor of Financer, who perfected by filing in Pennsylvania. At that time, Financer’s security interest is subordinate to Lender’s. See Section 9-322(a)(1). Financer reperfects by filing in Delaware within a year after the merger, but Lender fails to do so. Under subsection (b), Lender’s security interest is deemed never to have been perfected against Financer, a purchaser for value. Consequently, under Section 9-322(a)(2), Financer’s security interest is now senior.
Of course, the expiration of the time period specified in subsection (a) does not of itself prevent the secured party from later reperfecting under the law of the new jurisdiction. If the secured party does so, however, there will be a gap in perfection, and the secured party may lose priority as a result. Thus, in Example 7, if Lender perfects by filing in Delaware more than one year under the merger, it will have a new date of filing and perfection for purposes of Section 9-322(a)(1). Financer’s security interest, whose perfection dates back to the filing in Pennsylvania under subsection (b), will remain senior.
4. Possessory Security Interests. Subsection (c) deals with continued perfection of possessory security interests. It applies not only to security interests perfected solely by the secured party’s having taken possession of the collateral. It also applies to security interests perfected by a method that includes as an element of perfection the secured party’s having taken possession, such as perfection by taking delivery of a certificated security in registered form, see Section 9-313(a), and perfection by obtaining control over a certificated security. See Section 9-314(a).
5. Goods Covered by Certificate of Title. Subsections (d) and (e) address continued perfection of a security interest in goods covered by a certificate of title. The following examples explain the operation of those subsections.
Example 8: Debtor’s automobile is covered by a certificate of title issued by Illinois. Lender perfects a security interest in the automobile by complying with Illinois’ certificate-of-title statute. Thereafter, Debtor applies for a certificate of title in Indiana. Six months thereafter, Creditor acquires a judicial lien on the automobile. Under Section 9-303(b), Illinois law ceases to govern perfection; rather, once Debtor delivers the application and applicable fee to the appropriate Indiana authority, Indiana law governs. Nevertheless, under Indiana’s Section 9-316(d), Lender’s security interest remains perfected until it would become unperfected under Illinois law had no certificate of title been issued by Indiana. (For example, Illinois’ certificate-of-title statute may provide that the surrender of an Illinois certificate of title in connection with the issuance of a certificate of title by another jurisdiction causes a security interest noted thereon to become unperfected.) If Lender’s security interest remains perfected, it is senior to Creditor’s judicial lien.
Example 9: Under the facts in Example 8, five months after Debtor applies for an Indiana certificate of title, Debtor sells the automobile to Buyer. Under subsection (e)(2), because Lender did not reperfect within the four months after the goods became covered by the Indiana certificate of title, Lender’s security interest is deemed never to have been perfected against Buyer. Under Section 9-317(b), Buyer is likely to take free of the security interest. Lender could have protected itself by perfecting its security interest either under Indiana’s certificate-of-title statute, see Section 9-311, or, if it had a right to do so under an agreement or Section 9-609, by taking possession of the automobile. See Section 9-313(b).
The results in Examples 8 and 9 do not depend on the fact that the original perfection was achieved by notation on a certificate of title. Subsection (d) applies regardless of the method by which a security interest is perfected under the law of another jurisdiction when the goods became covered by a certificate of title from this State.
Section 9-337 affords protection to a limited class of persons buying or acquiring a security interest in the goods while a security interest is perfected under the law of another jurisdiction but after this State has issued a clean certificate of title.
6. Deposit Accounts, Letter-of-Credit Rights, and Investment Property. Subsections (f) and (g) address changes in the jurisdiction of a bank, issuer of an uncertificated security, issuer of or nominated person under a letter of credit, securities intermediary, and commodity intermediary. The provisions are analogous to those of subsections (a) and (b).
7. Agricultural Liens. This section does not apply to agricultural liens.
Example 10: Supplier holds an agricultural lien on corn. The lien arises under an Iowa statute. Supplier perfects by filing a financing statement in Iowa, where the corn is located. See Section 9-302. Debtor stores the corn in Missouri. Assume the Iowa agricultural lien survives or an agricultural lien arises under Missouri law (matters that this Article does not govern). Once the corn is located in Missouri, Missouri becomes the jurisdiction whose law governs perfection. See Section 9-302. Thus, the agricultural lien will not be perfected unless Supplier files a financing statement in Missouri.