Opinion ID: 1667402
Heading Depth: 1
Heading Rank: 3

Heading: Perfected Security Interest

Text: The Security Agreement section of Fidelity's Promissory Note and Security Agreement to Fidelity provides that the loan is secured by property set out on an ATTACHED LIST. The subject five pieces of heavy equipment sold are the first five items on the ATTACHED LIST. A THIRD PARTY AGREEMENT was included as part of the Promissory Note and Security Agreement and provided that while Barbara E. Reece was not personally liable to repay the loan, she did grant a security interest in the property on the ATTACHED LIST. Farm Credit admits it does not have a perfected security interest. Fidelity alleges that it has a perfected security interest in the equipment. A perfected security interest prevails over a non-perfected security interest, even if the perfecting party had notice of the prior interest when he took his security interest. In re Ace Sports Management, LLC., 271 B.R. 134, 152 (Bankr.E.D.Ark.2001). Therefore, if Fidelity's security interest was a perfected interest, it would prevail over Farm Credit's interest. Under Article 9 of the UCC, two documents are needed to create a perfected security interest in a debtor's collateral: a `security agreement' giving the creditor an interest in the collateral and a filed `financing statement' providing notice to other creditors that a security is claimed in the collateral. In re Outboard Marine Corp., 300 B.R. 308, 319 (Bankr.N.D.Ill. 2003). In the case before us, we have both a security agreement and a financing statement. The financing statement was filed with the Secretary of State's office and the St. Francis County Clerk's Office. However, Farm Credit alleges there is no perfected security interest because Barbara E. Reece did not sign the financing statement. According to the security agreement, Barbara E. Reece held a personal interest in the subject five pieces of equipment. A financing statement must include the name of the debtor and be signed by the debtor. In re Answerfone, 48 B.R. 24 (Bankr.E.D.Ark.1985); see also Ark.Code Ann. § 4-9-402 (Supp.1997). The financing statement is signed by James A. Reece on behalf of Reece Contracting, Inc. Barbara's name is not on the financing statement, nor is her signature on the financing statement. [2] Although as stated in the security agreement, Barbara was not personally liable on the loan, she did pledge her interest in the equipment as collateral in which she held a personal interest. Because Barbara pledged collateral, she is a debtor under Arkansas secured transactions law. Ark. Code Ann. § 4-9-105(1)(d) (Supp.1997); see also In re Davison, 738 F.2d 931 (8th Cir.1984). Thus, for purposes of determining whether the security interest was perfected, Barbara is a debtor. The purpose of a financing statement is to alert third parties to the existence of a security interest in property held by a debtor. Fifth Third Bank v. Comark, Inc., 794 N.E.2d 433, 436 (Ind.App.2003). In other words, a person should be able to review the filed financing statements and be put on notice of the existence of a security interest in a debtor's property. To achieve this required notice, a financing statement must provide the name of the debtor and be signed by the debtor. Wallace, supra. Arkansas Code Section 4-9-402(1) (Supp.1997) provides in pertinent part: A financing statement is sufficient if it gives the names of the debtor and the secured party, and is signed by the debtor. . . . In Arkansas, financing statements are indexed by the name of the debtor. Wallace, supra. Therefore, it is clear that the debtor's name must appear on the financing statement. Additionally, it is required that the debtor sign the financing statement. Id. Barbara's name does not appear on the financing statement. She did not sign it. The financing statement was therefore insufficient. A search of the financing statements would not put an interested person on notice of the security interest.