Financing Statements Under Revised UCC Article 9

Page 1: Financing Statements Under Revised UCC Article 9

Open-drawer Filing System

Financing Statements. One dramatic change made by revised Article 9 is that the debtor's signature is no longer required on a financing statement.33 Nevertheless, a financing statement is effective only if it is authorized by the debtor.34 If a debtor signs a security agreement, the debtor authorizes the filing of an initial financing statement covering the collateral described in the security agreement.35 The description of collateral as "all personal property" is effective in a financing statement, but not effective in a security agreement.36 Accordingly, in order to file an "authorized" financing statement that describes the collateral as "all personal property," the secured party must either describe the collateral as "all personal property" in the security agreement, even though that otherwise is ineffective (and raises an opinion issue), or obtain, in the security agreement or elsewhere, the debtor's authorization to use "all personal property" as a description of collateral. The "open-drawer" system means that a financing statement revealed by a lien search may be ineffective because it was not authorized by the debtor. Amendments to financing statements also do not require signatures. Nevertheless, in order for the amendments to be effective, they must be authorized by the secured party of record unless the amendments added a debtor or added collateral.37

Termination statements also do not require a signature, but are not effective unless they are authorized by the secured party. Nevertheless, the debtor can authorize the filing of a termination statement if the secured party is required to file one and has failed to do so, and the termination statement indicates that the debtor authorized it to be filed.38 Termination (or amendment) by one secured party may not affect the financing statement as to the other secured parties.39 This means that a financing statement may be effective even though a termination statement has been filed, if the termination statement was not properly authorized. This will make lien searches difficult by requiring inquiry into whether termination statements were properly authorized by the secured party(ies) of record.

This possible need for inquiry may create administrative problems and delays in connection with subsequent financing transactions as a new lender tries to verify that a termination statement filed by a prior lender was in fact properly authorized by that prior lender. Perhaps these difficulties could be minimized if secured parties made a practice of providing to their debtors, whenever a properly authorized termination statement was filed, a letter addressed "to whom it may concern" stating that the particular termination statement was in fact properly authorized. Such a letter would be helpful to the debtor because it would facilitate subsequent financing transactions. It also would be helpful to the terminating lender because it would reduce the administrative burden of future inquiries from new lenders wanting to confirm that the termination statement was authorized.

Financing Statements Filed Before the Effective Date

A financing statement filed before July 1, 2001, will be effective under revised Article 9 as long as it satisfies the requirements of revised Article 9, and is filed in the jurisdiction appropriate under revised Article 9.40 If the financing statement is filed in the correct location under the prior version of Article 9, but the wrong location under revised Article 9, the financing statement remains effective until the earlier of the time it would have ceased to be effective under the prior version of Article 9 (usually five years, unless properly continued), or June 30, 2006.41 This means that until June 30, 2006, lien searchers must search both the filing office appropriate under revised Article 9 and the filing office appropriate under the prior version of Article 9. Financing statements filed against transmitting utilities will not expire even on June 30, 2006, unless revised Article 9 would require filing in a different jurisdiction.42

Continuation of Financing Statements Filed Before the Effective Date

Financing statements filed before the effective date can be continued only by filings made in the appropriate state and filing office under revised Article 9.

A continuation statement effectively continues a financing statement filed before the effective date if it is timely filed and if revised Article 9 prescribes the same jurisdiction and the same filing office.43 The continuation statement is effective only if the financing statement and continuation statement taken together satisfy the requirements for an initial financing statement under revised Article 9 with respect to, for example, the sufficiency of the debtor's name, the secured party's name, and the indication of collateral.44

Otherwise, the filing of a continuation statement after the effective date will not continue the effectiveness of a financing statement filed before the effective date.45 Whenever revised Article 9 requires filing in a new jurisdiction or filing office, secured parties will want to file new initial financing statements to continue their pre-effective-date filings in order to retain their pre-effective-date priority. Simply filing a new initial financing statement in the new jurisdiction is not enough.46 If the new financing statement does not identify or continue the prior filings, the priority of the new financing statement will date only from its date of filing or, if later, the effective date of revised Article 9. The new initial financing statement must:

• satisfy the requirements of revised Article 9;
  
  
• identify the pre-effective-date financing statement by indicating the office where it was filed, the dates of filing, and the file numbers of the financing statement and the most recent continuation statement; and
  
  
• indicate that the pre-effective-date financing statement remains effective.47

The new initial financing statement is not a continuation statement, and may be filed at any time during the effectiveness of the pre-effective-date financing statement, and not only within the six months immediately prior to lapse. Accordingly, it could have been filed before the effective date. The new initial financing statement will have its own lapse date, which will bear no relation to the lapse date of the pre-effective-date financing statement that it continues. A single new initial financing statement may continue the effectiveness of more than one pre-effective-date financing statement.48 As discussed above, the filing of a new initial financing statement identifying prior filings may be crucial to retaining priority over other secured parties.

Authorization by the secured party of record is sufficient if the filing is necessary to continue the effectiveness of a financing statement filed before the effective date or to perfect or continue the perfection of a security interest.49

Impact of Delayed Effective Date in Other States

As discussed above, some states have adopted revised Article 9 with effective dates other than July 1, 2001. This raises complex conflict of law issues for secured parties perfecting security interests prior to Jan. 1, 2002, when revised Article 9 will become effective in all 50 states. These issues are beyond the scope of this article, but are addressed in detail by a report by the Permanent Editorial Board of the Uniform Commercial Code.50

Conclusion

Revised Article 9 makes major changes in some of the most basic aspects of financing transactions secured by personal property. Its adoption raises many complex legal and practical issues. Resolution of those issues will require care and attention from all attorneys involved in secured financing transactions.

Sidebar: Wisconsin Department of Financial Institutions
Will Administer UCC Article 9, Lien Filing System

Endnotes

1 UCC Rev. §§ 9-301(1), -307(b)(1) (1999); Wis. Stat. §§ 409.301(1), .307(2)(a) (as created by 2001 Wis. Act 10).

2 Rev. § 9-307(e), (g); Wis. Stat. § 409.307(5), (7).

3 Rev. § 9-102(a)(70); Wis. Stat. § 409.102(1)(rg).

4 Rev. § 9-307(f); Wis. Stat. § 409.307(6).

5 Rev. § 9-316(a); Wis. Stat. § 409.316(1)(b), (c).

6 Rev. § 9-307(b)(1); Wis. Stat. § 409.307(2)(b).

7 Rev. § 9-307(b)(2); Wis. Stat. § 409.307(2)(c).

8 Rev. § 9-307(c); Wis. Stat. § 409.307(3).

9 Rev. § 9-506(b), (c); Wis. Stat. § 409.506(2), (3).

10 Rev. § 9-503(b), (c); Wis. Stat. § 409.503(2), (3).

11 Rev. § 9-503(e); Wis. Stat. § 409.503(5).

12 Rev. § 9-503(d); Wis. Stat. § 409.503(4).

13 DFI-CCS § 5.04.

14 Id.

15 Rev. § 9-507(c)(1); Wis. Stat. § 409.507(3)(a).

16 Rev. § 9-507(c)(2); Wis. Stat. § 409.507(3)(b).

17 Rev. §§ 9-507(a), -508; Wis. Stat. §§ 409.507(1), .508.

18 Wis. Admin. Emergency Rule, DFI-CCS § 3.03(2) (2001).

19 DFI-CCS § 3.03(3).

20 Id.

21 DFI-CCS § 5.04(7).

22 Rev. § 9-516(b)(3)(C); Wis. Stat. § 409.516(2)(c)(3).

23 DFI-CCS § 3.03(1).

24 Rev. § 9-503(a)(1); Wis. Stat. § 409.503(1)(a).

25 Rev. § 9-503(a)(3); Wis. Stat. § 409.503(1)(c)(1).

26 Rev. § 9-503(a)(3)(A); Wis. Stat. § 409.503(1)(c)(1).

27 Rev. § 9-503(a)(3)(B); Wis. Stat. § 409.503(1)(c)(2).

28 Del. Code Ann. tit. 6, § 9-703 (2000).

29 Rev. § 9-309, cmt. 7.

30 Rev. § 9-503(a)(4)(A); Wis. Stat. § 409.503(1)(d)(1).

31 Rev. § 9-503(a)(4)(B); Wis. Stat. § 409.503(1)(d)(2).

32 Rev. § 9-503; Wis. Stat. § 409.503(4).

33 Rev. § 9-502; Wis. Stat. § 409.502.

34 Rev. §§ 9-509(a), -510; Wis. Stat. §§ 409.509(1), .510.

35 Rev. § 9-509(b); Wis. Stat. § 409.509(2).

36 Rev. §§ 9-108(c), -504; Wis. Stat. §§ 409.108(3), .504.

37 Rev. § 9-509(d); Wis. Stat. § 409.509(4).

38 Rev. § 9-509(d); Wis. Stat. § 409.509(4).

39 Rev. § 9-510(b); Wis. Stat. § 409.510(2).

40 Rev. § 9-705(b); Wis. Stat. § 409-705(2).

41 Rev. § 9-705(c); Wis. Stat. § 409-705(3).

42 Rev. § 9-705(e); Wis. Stat. § 409-705(5).

43 Rev. § 9-705(d), cmt. 5; Wis. Stat. § 409-705(4).

44 Rev. § 9-705(f), cmt. 6; Wis. Stat. § 409.705(6).

45 Rev. § 9-705(d); Wis. Stat. § 409.705(4).

46 Rev. § 9-706(a); Wis. Stat. § 409.706(1).

47 Rev. § 9-706(c); Wis. Stat. § 409-706(3).

48 Rev. § 9-706, cmt. 2; Wis. Stat. § 409.706.

49 Rev. § 9-707; Wis. Stat. § 409.708.

50 Permanent Editorial Board Report, June 13, 2001: Article 9 Perfection Choice of Law Analysis Where Revised Article 9 is Not in Effect in All States by July 1, 2001.