Opinion ID: 1997506
Heading Depth: 1
Heading Rank: 1

Heading: The Competing Security Interests

Text: [¶ 7] Pepperell first challenges the entry of a summary judgment. A party is entitled to summary judgment where there is no genuine issue of material fact and the party on the undisputed facts is entitled to judgment as a matter of law. Chadwick-BaRoss, Inc. v. T. Buck Constr., Inc., 627 A.2d 532, 534 (Me.1993); M.R.Civ.P. 56(c). [¶ 8] The material facts concerning the competing security interests are undisputed. On those facts, the trial court correctly found Mountain Heir to be entitled to a judgment as a matter of law pursuant to 11 M.R.S.A. § 9-403(2) (1995) which provides, in pertinent part, that: Except as provided in subsection (6) [5] , a filed financing statement is effective for a period of 5 years from the date of filing. The effectiveness of a filed financing statement lapses on the expiration of the 5-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. The commentary following this section notes that [u]nder subsection (2) the security interest becomes unperfected when filing lapses. Thereafter, the interest of the secured party is subject to defeat by purchasers and lienors even though before lapse the conflicting interest may have been junior. U.C.C. § 9-403 cmt. (1972). This is true even where the originally junior creditor had actual knowledge of the previously superior interest. State Savings Bank v. Onawa State Bank, 368 N.W.2d 161, 166 (Iowa 1985); General Electric Credit Corp. v. Isaacs, 90 Wash.2d 234, 581 P.2d 1032, 1035-37 (1978). Thus, Pepperell lost its priority as against Mountain Heir when its original filing expired without the statutorily required continuation statement. [¶ 9] Pepperell argues, however, that because Mountain Heir had actual knowledge of Pepperell's interest, Pepperell is entitled to a continuing priority pursuant to 11 M.R.S.A. § 9-401(2) (1995). Its reliance on § 9-401(2) is misplaced. That section provides, in pertinent part, that: A filing which is made in good faith in an improper place or not in all of the places required by this section is nevertheless ... effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of such financing statement. Pepperell did not file in an improper place or in fewer than all required places. Rather, it failed altogether to file a continuation statement, erroneously or otherwise. Section 9-401(2) is therefore entirely inapplicable to the establishment of priorities in this case. [¶ 10] Pepperell next asserts that the court erred in imposing sanctions for the filing of its complaint for declaratory judgment. All pleadings must be signed as certification that to the best of the signer's knowledge, information, and belief there is good ground to support it. M.R.Civ.P. 11. Where no such good ground exists, Rule 11 allows the court to impose an appropriate sanction. Id. A trial court's imposition of sanctions pursuant to Rule 11 is reviewed for abuse of discretion. June Roberts Agency, Inc. v. Venture Properties, Inc., 676 A.2d 46, 50 (Me.1996). The trial court here considered Pepperell's original claim in light of the clear mandate of § 9-403(2) and the obvious inapplicability of § 9-401(2) and concluded that Pepperell had no good ground to support its claim of a superior security interest. On that basis, the court correctly determined that sanctions were appropriate and acted well within its discretion in imposing a sanction of $500 upon Pepperell.