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Filing
Subpart 1.
Filing Office; Contents and Effectiveness Of Financing Statement
Section 36‑9‑501. Filing office. (a) Except as otherwise provided in subsection (b), if the local law of this State governs perfection of a security interest or agricultural lien, the office in which to file a financing statement to perfect the security interest or agricultural lien is: (1) the office designated for the filing or recording of a record of a mortgage on the related real property, if: (A) the collateral is as‑extracted collateral or timber to be cut; or (B) the financing statement is filed as a fixture filing and the collateral is goods that are or are to become fixtures; or (2) the office of the Secretary of State or any office duly authorized by the Secretary of State, in all other cases, including a case in which the collateral is goods that are or are to become fixtures and the financing statement is not filed as a fixture filing. (b) The office in which to file a financing statement to perfect a security interest in collateral, including fixtures, of a transmitting utility is the office of the Secretary of State. The financing statement also constitutes a fixture filing as to the collateral indicated in the financing statement which is or is to become fixtures.
Official Comment 1. Source. Derived from former Section 9‑401.
2. Where to File. Subsection (a) indicates where in a given State a financing statement is to be filed. Former Article 9 afforded each State three alternative approaches, depending on the extent to which the State desires central filing (usually with the Secretary of State), local filing (usually with a county office), or both. As Comment 1 to former Section 9‑401 observed, “The principal advantage of state‑wide filing is ease of access to the credit information which the files exist to provide. Consider for example the national distributor who wishes to have current information about the credit standing of the thousands of persons he sells to on credit. The more completely the files are centralized on a state‑wide basis, the easier and cheaper it becomes to procure credit information; the more the files are scattered in local filing units, the more burdensome and costly.” Local filing increases the net costs of secured transactions also by increasing uncertainty and the number of required filings. Any benefit that local filing may have had in the 1950’s is now insubstantial. Accordingly, this Article dictates central filing for most situations, while retaining local filing for real‑estate‑related collateral and special filing provisions for transmitting utilities.
3. Minerals and Timber. Under subsection (a)(1), a filing in the office where a record of a mortgage on the related real property would be filed will perfect a security interest in as‑extracted collateral. Inasmuch as the security interest does not attach until extraction, the filing continues to be effective after extraction. A different result occurs with respect to timber to be cut, however. Unlike as‑extracted collateral, standing timber may be goods before it is cut. See Section 9‑102 (defining “goods”). Once cut, however, it is no longer timber to be cut, and the filing in the real‑property‑mortgage office ceases to be effective. The timber then becomes ordinary goods, and filing in the office specified in subsection (a)(2) is necessary for perfection. Note also that after the timber is cut the law of the debtor’s location, not the location of the timber, governs perfection under Section 9‑301.
4. Fixtures. There are two ways in which a secured party may file a financing statement to perfect a security interest in goods that are or are to become fixtures. It may file in the Article 9 records, as with most other goods. See subsection (a)(2). Or it may file the financing statement as a “fixture filing,” defined in Section 9‑102, in the office in which a record of a mortgage on the related real property would be filed. See subsection(a)(1)(B).
5. Transmitting Utilities. The usual filing rules do not apply well for a transmitting utility (defined in Section 9‑102). Many pre‑UCC statutes provided special filing rules for railroads and in some cases for other public utilities, to avoid the requirements for filing with legal descriptions in every county in which such debtors had property. Former Section 9‑401(5) recreated and broadened these provisions, and subsection (b) follows this approach. The nature of the debtor will inform persons searching the record as to where to make a search.
Section 36‑9‑501 South Carolina Reporter’s Comment When South Carolina law governs the perfection of a security interest or agricultural lien by filing, Section 36‑9‑501 specifies the office within the state in which the financing statement must be filed. The general rule under Subsection 36‑9‑501(a)(2) is that financing statements are filed in the Office of the Secretary of State. Subsection (a)(1), however, provides that if the collateral is as‑extracted collateral or timber to be cut or if a financing statement is filed as a fixture filing; the proper office for filing is the office in which a mortgage on the related real property would be recorded. Note that Section 36‑9‑501 changes prior law by providing for centralized, rather than local, filing for farm related collateral and consumer goods. See former Section 36‑9‑401(a).
Definitional Cross References “Agricultural lien” Section 36‑9‑102(a)(5) “As‑extracted collateral” Section 36‑9‑102(a)(6) “Financing statement” Section 36‑9‑102(a)(39) “Fixture filing” Section 36‑9‑102(a)(40) “Fixtures” Section 36‑9‑102(a)(41) “Goods” Section 36‑9‑102(a)(44) “Security interest” Section 36‑1‑201(37) “Transmitting utility” Section 36‑9‑102(a)(80)
Cross References 1. General choice of law rules for perfection of a security interest by filing. Sections 36‑9‑301 and 36‑9‑307. 2. Choice of law rules for perfection of an agricultural lien by filing. Section 36‑9‑302. 3. Choice of law for perfection of a security interest in as‑extracted collateral by filing. Section 36‑9‑301(4). 4. Choice of law rule for perfection of a security interest in goods by a fixture filing. Sections 36‑9‑301(3)(A). 5. Choice of law rule for perfection by filing of a security interest in timber to be cut. Section 36‑9‑301(3)(B). 6. Collateral upon which a security interest may be perfected by filing. Sections 36‑9‑310 and 36‑9‑312(a).
Section 36‑9‑502. Contents of financing statement; record of mortgage as financing statement; time of filing financing statement. (a) Subject to subsection (b), a financing statement is sufficient only if it: (1) provides the name of the debtor; (2) provides the name of the secured party or a representative of the secured party; and (3) indicates the collateral covered by the financing statement. (b) Except as otherwise provided in Section 36‑9‑501(b), to be sufficient, a financing statement that covers as‑extracted collateral or timber to be cut, or which is filed as a fixture filing and covers goods that are or are to become fixtures, must satisfy subsection (a) and also: (1) indicate that it covers this type of collateral; (2) indicate that it is to be filed for record in the real property records; (3) provide a description of the real property to which the collateral is related sufficient to give constructive notice of a mortgage under the law of this State if the description were contained in a record of the mortgage of the real property; and (4) if the debtor does not have an interest of record in the real property, provide the name of a record owner. (c) A record of a mortgage is effective, from the date of recording, as a financing statement filed as a fixture filing or as a financing statement covering as‑extracted collateral or timber to be cut only if: (1) the record indicates the goods or accounts that it covers; (2) the goods are or are to become fixtures related to the real property described in the record or the collateral is related to the real property described in the record and is as‑extracted collateral or timber to be cut; (3) the record satisfies the requirements for a financing statement in this Section other than an indication that it is to be filed in the real property records; and (4) the record is duly recorded. (d) A financing statement may be filed before a security agreement is made or a security interest otherwise attaches.
Official Comment 1. Source. Former Section 9‑402(1), (5), (6).
2. “Notice Filing.” This Section adopts the system of “notice filing.” What is required to be filed is not, as under pre‑UCC chattel mortgage and conditional sales acts, the security agreement itself, but only a simple record providing a limited amount of information (financing statement). The financing statement may be filed before the security interest attaches or thereafter. See subsection (d). See also Section 9‑308(a) (contemplating situations in which a financing statement is filed before a security interest attaches).
The notice itself indicates merely that a person may have a security interest in the collateral indicated. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs. Section 9‑210 provides a statutory procedure under which the secured party, at the debtor’s request, may be required to make disclosure. However, in many cases, information may be forthcoming without the need to resort to the formalities of that Section.
Notice filing has proved to be of great use in financing transactions involving inventory, accounts, and chattel paper, because it obviates the necessity of refiling on each of a series of transactions in a continuing arrangement under which the collateral changes from day to day. However, even in the case of filings that do not necessarily involve a series of transactions (e.g., a loan secured by a single item of equipment), a financing statement is effective to encompass transactions under a security agreement not in existence and not contemplated at the time the notice was filed, if the indication of collateral in the financing statement is sufficient to cover the collateral concerned. Similarly, a financing statement is effective to cover after‑acquired property of the type indicated and to perfect with respect to future advances under security agreements, regardless of whether after‑acquired property or future advances are mentioned in the financing statement and even if not in the contemplation of the parties at the time the financing statement was authorized to be filed.
3. Debtor’s Signature; Required Authorization. Subsection (a) sets forth the simple formal requirements for an effective financing statement. These requirements are: (1) the debtor’s name; (2) the name of a secured party or representative of the secured party; and (3) an indication of the collateral.
Whereas former Section 9‑402(1) required the debtor’s signature to appear on a financing statement, this Article contains no signature requirement. The elimination of the signature requirement facilitates paperless filing. (However, as PEB Commentary No. 15 indicates, a paperless financing statement was sufficient under former Article 9.) Elimination of the signature requirement also makes the exceptions provided by former Section 9‑402(2) unnecessary.
The fact that this Article does not require that an authenticating symbol be contained in the public record does not mean that all filings are authorized. Rather, Section 9‑509(a) entitles a person to file an initial financing statement, an amendment that adds collateral, or an amendment that adds a debtor only if the debtor authorizes the filing, and Section 9‑509(d) entitles a person other than the debtor to file a termination statement only if the secured party of record authorizes the filing. Of course, a filing has legal effect only to the extent it is authorized. See Section 9‑510.
Law other than this Article, including the law with respect to ratification of past acts, generally determines whether a person has the requisite authority to file a record under this Article. See Section 1‑103. However, under Section 9‑509(b), the debtor’s authentication of (or becoming bound by) a security agreement ipso facto constitutes the debtor’s authorization of the filing of a financing statement covering the collateral described in the security agreement. The secured party need not obtain a separate authorization.
Section 9‑625 provides a remedy for unauthorized filings. Making an unauthorized filing also may give rise to civil or criminal liability under other law. In addition, this Article contains provisions that assist in the discovery of unauthorized filings and the amelioration of their practical effect. For example, Section 9‑518 provides a procedure whereby a person may add to the public record a statement to the effect that a financing statement indexed under the person’s name was wrongfully filed, and Section 9‑509(d) entitles any person to file a termination statement if the secured party of record fails to comply with its obligation to file or send one to the debtor, the debtor authorizes the filing, and the termination statement so indicates. However, the filing office is neither obligated nor permitted to inquire into issues of authorization. See Section 9‑520(a).
4. Certain Other Requirements. Subsection (a) deletes other provisions of former Section 9‑402(1) because they seems unwise (real‑property description for financing statements covering crops), unnecessary (adequacy of copies of financing statements), or both (copy of security agreement as financing statement). In addition, the filing office must reject a financing statement lacking certain other information formerly required as a condition of perfection (e.g., an address for the debtor or secured party). See Sections 9‑516(b), 9‑520(a). However, if the filing office accepts the record, it is effective nevertheless. See Section 9‑520(c).
5. Real‑Property‑Related Filings. Subsection (b) contains the requirements for financing statements filed as fixture filings and financing statements covering timber to be cut or minerals and minerals‑related accounts constituting as‑extracted collateral. A description of the related real property must be sufficient to reasonably identify it. See Section 9‑108. This formulation rejects the view that the real property description must be by metes and bounds, or otherwise conforming to traditional real‑property practice in conveyancing, but, of course, the incorporation of such a description by reference to the recording data of a deed, mortgage or other instrument containing the description should suffice under the most stringent standards. The proper test is that a description of real property must be sufficient so that the financing statement will fit into the real‑property search system and be found by a real‑property searcher. Under the optional language in subsection (b)(3), the test of adequacy of the description is whether it would be adequate in a record of a mortgage of the real property. As suggested in the Legislative Note, more detail may be required if there is a tract indexing system or a land registration system.
If the debtor does not have an interest of record in the real property, a real‑property‑related financing statement must show the name of a record owner, and Section 9‑519(d) requires the financing statement to be indexed in the name of that owner. This requirement also enables financing statements covering as‑extracted collateral or timber to be cut and financing statements filed as fixture filings to fit into the real‑property search system.
6. Record of Mortgage Effective as Financing Statement. Subsection (c) explains when a record of a mortgage is effective as a financing statement filed as a fixture filing or to cover timber to be cut or as‑extracted collateral. Use of the term “record of a mortgage” recognizes that in some systems the record actually filed is not the record pursuant to which a mortgage is created. Moreover, “mortgage” is defined in Section 9‑102 as an “interest in real property,” not as the record that creates or evidences the mortgage or the record that is filed in the public recording systems. A record creating a mortgage may also create a security interest with respect to fixtures (or other goods) in conformity with this Article. A single agreement creating a mortgage on real property and a security interest in chattels is common and useful for certain purposes. Under subsection (c), the recording of the record evidencing a mortgage (if it satisfies the requirements for a financing statement) constitutes the filing of a financing statement as to the fixtures (but not, of course, as to other goods). Section 9‑515(g) makes the usual five‑year maximum life for financing statements inapplicable to mortgages that operate as fixture filings under Section 9‑502(c). Such mortgages are effective for the duration of the real‑property recording.
Of course, if a combined mortgage covers chattels that are not fixtures, a regular financing statement filing is necessary with respect to the chattels, and subsection (c) is inapplicable. Likewise, a financing statement filed as a “fixture filing” is not effective to perfect a security interest in personal property other than fixtures.
In some cases it may be difficult to determine whether goods are or will become fixtures. Nothing in this Part prohibits the filing of a “precautionary” fixture filing, which would provide protection in the event goods are determined to be fixtures. The fact of filing should not be a factor in the determining whether goods are fixtures. Cf. Section 9‑505(b).
Section 36‑9‑502 South Carolina Reporter’s Comment Section 36‑9‑502 sets forth the requirements for a sufficient financing statement. Subsection (a) states the requirements all financing statements must meet. Subsection (b) sets forth additional requirements for fixture filings and financing statements covering as‑extracted collateral and timber to be cut. Subsection (a) provides that a financing statement is sufficient only if it provides the name of the debtor, provides the name of the secured party or representative of the secured party, and indicates the collateral covered. Note that in contrast to former Section 36‑9‑402(1), current law does not condition the effectiveness of a financing statement upon its being signed by the debtor. Subsection (a), however, must be read in conjunction with Section 36‑9‑516(b) and Section 36‑9‑520(a). Under Section 36‑9‑520(a) a filing office is required to refuse to accept a financing statement for filing if the financing statement fails to meet the requirements of Section 36‑9‑516(b). Therefore, a filing office must refuse to accept a financing statement that meets the requirements of Section 36‑9‑502(a) but fails to meet the requirements of Section 36‑9‑516(b). If the filing office refuses to accept such a financing statement for filing, the financing statement will not be effective to perfect a security interest. Nevertheless, if the filing office accepts such a financing statement for filing, under Section 36‑9‑520(c) the financing statement is effective. The priority of a security interest perfected by a filed financing statement that does not meet the requirements of Section 36‑9‑516(b) may be subordinated under Section 36‑9‑338.
Definitional Cross References “Account” Section 36‑9‑102(a)(2) “As‑extracted collateral” Section 36‑9‑102(a)(6) “Collateral” Section 36‑9‑102(a)(12) “Debtor” Section 36‑9‑102(a)(28) “Financing statement” Section 36‑9‑102(a)(39) “Fixture filing” Section 36‑9‑102(a)(40) “Fixtures” Section 36‑9‑102(a)(41) “Goods” Section 36‑9‑102(a)(44) “Mortgage” Section 36‑9‑102(a)(55) “Secured party” Section 36‑9‑102(a)(72) “Security agreement Section 36‑9‑102(a)(73)
Cross References 1. Sufficiency of the name of the debtor. Section 36‑9‑503(a) ‑ (c). 2. Failure to indicate the representative capacity of a secured party or representative of a secured party does not affect the sufficiency of a financing statement. Section 36‑9‑503(d). 3. Sufficiency of indication of type of collateral covered. Section 36‑9‑504. 4. Effect of errors and omissions upon the sufficiency of a financing statement. Section 36‑9‑505. 5. Duration of the effectiveness of a financing statement. Section 36‑9‑515. 6. Grounds upon which a filing office is required to refuse to accept a financing statement for filing. Sections 36‑9‑516(b) and 36‑9‑520(a). 7. Priority of security interests perfected by filing a financing statement which was effective under Section 36‑9‑502, but failed to meet the requirements of Section 36‑9‑516(b). Section 36‑9‑338. 8. Form of a financing statement. Section 36‑9‑521.
Section 36‑9‑503. Name of debtor and secured party. (a) A financing statement sufficiently provides the name of the debtor: (1) if the debtor is a registered organization, only if the financing statement provides the name of the debtor indicated on the public record of the debtor’s jurisdiction of organization which shows the debtor to have been organized; (2) if the debtor is a decedent’s estate, only if the financing statement provides the name of the decedent and indicates that the debtor is an estate; (3) if the debtor is a trust or a trustee acting with respect to property held in trust, only if the financing statement: (A) provides the name specified for the trust in its organic documents or, if no name is specified, provides the name of the settlor and additional information sufficient to distinguish the debtor from other trusts having one or more of the same settlors; and (B) indicates, in the debtor’s name or otherwise, that the debtor is a trust or is a trustee acting with respect to property held in trust; and (4) in other cases: (A) if the debtor has a name, only if it provides the individual or organizational name of the debtor; and (B) if the debtor does not have a name, only if it provides the names of the partners, members, associates, or other persons comprising the debtor. (b) A financing statement that provides the name of the debtor in accordance with subsection (a) is not rendered ineffective by the absence of: (1) a trade name or other name of the debtor; or (2) unless required under subsection (a)(4)(B), names of partners, members, associates, or other persons comprising the debtor. (c) A financing statement that provides only the debtor’s trade name does not sufficiently provide the name of the debtor. (d) Failure to indicate the representative capacity of a secured party or representative of a secured party does not affect the sufficiency of a financing statement. (e) A financing statement may provide the name of more than one debtor and the name of more than one secured party.
Official Comment 1. Source. Subsections (a)(4)(A), (b), and (c) derive from former Section 9‑402(7); otherwise, new.
2. Debtor’s Name. The requirement that a financing statement provide the debtor’s name is particularly important. Financing statements are indexed under the name of the debtor, and those who wish to find financing statements search for them under the debtor’s name. Subsection (a) explains what the debtor’s name is for purposes of a financing statement. If the debtor is a “registered organization” (defined in Section 9‑102 so as to ordinarily include corporations, limited partnerships, and limited liability companies), then the debtor’s name is the name shown on the public records of the debtor’s “jurisdiction of organization” (also defined in Section 9‑102). Subsections (a)(2) and (a)(3) contain special rules for decedent’s estates and common‑law trusts. (Subsection (a)(1) applies to business trusts that are registered organizations.)
Subsection (a)(4)(A) essentially follows the first sentence of former Section 9‑402(7). Section 1‑201(28) defines the term “organization,” which appears in subsection (a)(4), very broadly, to include all legal and commercial entities as well as associations that lack the status of a legal entity. Thus, the term includes corporations, partnerships of all kinds, business trusts, limited liability companies, unincorporated associations, personal trusts, governments, and estates. If the organization has a name, that name is the correct name to put on a financing statement. If the organization does not have a name, then the financing statement should name the individuals or other entities who comprise the organization.
Together with subsections (b) and (c), subsection (a) reflects the view prevailing under former Article 9 that the actual individual or organizational name of the debtor on a financing statement is both necessary and sufficient, whether or not the financing statement provides trade or other names of the debtor and, if the debtor has a name, whether or not the financing statement provides the names of the partners, members, or associates who comprise the debtor.
Note that, even if the name provided in an initial financing statement is correct, the filing office nevertheless must reject the financing statement if it does not identify an individual debtor’s last name (e.g., if it is not clear whether the debtor’s name is Perry Mason or Mason Perry). See Section 9‑516(b)(3)(C).
3. Secured Party’s Name. New subsection (d) makes clear that when the secured party is a representative, a financing statement is sufficient if it names the secured party, whether or not it indicates any representative capacity. Similarly, a financing statement that names a representative of the secured party is sufficient, even if it does not indicate the representative capacity.
Example: Debtor creates a security interest in favor of Bank X, Bank Y, and Bank Z, but not to their representative, the collateral agent (Bank A). The collateral agent is not itself a secured party. See Section 9‑102. Under Sections 9‑502(a) and 9‑503(d), however, a financing statement is effective if it names as secured party Bank A and not the actual secured parties, even if it omits Bank A’s representative capacity.
Each person whose name is provided in an initial financing statement as the name of the secured party or representative of the secured party is a secured party of record. See Section 9‑511.
4. Multiple Names. Subsection (e) makes explicit what is implicit under former Article 9: a financing statement may provide the name of more than one debtor and secured party. See Section 1‑102(5)(a) (words in the singular include the plural). With respect to records relating to more than one debtor, see Section 9‑520(d). With respect to financing statements providing the name of more than one secured party, see Sections 9‑509(e) and 9‑510(b).
Section 36‑9‑503 South Carolina Reporter’s Comment Section 36‑9‑503 sets forth the standards for determining whether a financing statement sufficiently provides the name of the debtor. Subsection (a)(1) provides that if a debtor is a registered corporation, such as a corporation, limited partnership, or limited liability company, the financing statement is sufficient only if it provides the name of the debtor indicated on the public record which establishes that debtor was organized. Subsection (c) clarifies former law by expressly providing that a financing statement that provides only the debtor’s trade name is not sufficient.
Definitional Cross References “Debtor” Section 36‑9‑102(a)(28) “Financing statement” Section 36‑9‑102(a)(39) “Organization” Section 36‑1‑201(28) “Registered organization” Section 36‑9‑102(a)(70) “Secured party” Section 36‑9‑102(a)(72)
Cross References When an error in the debtor’s name is not seriously misleading and does render the financing statement ineffective. Section 36‑9‑506(a) ‑ (c).
Section 36‑9‑504. Indication of collateral. A financing statement sufficiently indicates the collateral that it covers if the financing statement provides: (1) a description of the collateral pursuant to Section 36‑9‑108; or (2) an indication that the financing statement covers all assets or all personal property.
Official Comment 1. Source. Former Section 9‑402(1).
2. Indication of Collateral. To comply with Section 9‑502(a), a financing statement must “indicate” the collateral it covers. This Section explains what suffices for an indication.
Paragraph (1) provides that a “description” of the collateral (as the term is explained in Section 9‑108) suffices as an indication for purposes of the sufficiency of a financing statement.
Debtors sometimes create a security interest in all, or substantially all, of their assets. To accommodate this practice, paragraph (2) expands the class of sufficient collateral references to embrace “an indication that the financing statement covers all assets or all personal property.” If the property in question belongs to the debtor and is personal property, any searcher will know that the property is covered by the financing statement. Of course, regardless of its breadth, a financing statement has no effect with respect to property indicated but to which a security interest has not attached. Note that a broad statement of this kind (e.g., “all debtor’s personal property”) would not be a sufficient “description” for purposes of a security agreement. See Sections 9‑203(b)(3)(A), 9‑108. It follows that a somewhat narrower description than “all assets,” e.g., “all assets other than automobiles,” is sufficient for purposes of this Section, even if it does not suffice for purposes of a security agreement.
Section 36‑9‑504 South Carolina Reporter’s Comment Section 36‑9‑504 provides the rules for determining whether a financing statement sufficiently indicates the collateral it covers. A financing statement is sufficient if it provides a description of collateral pursuant to Section 36‑9‑108. A financing statement is also sufficient if it provides that it covers all of the debtor’s assets or personal property. Note that these “super generic” descriptions would not sufficiently describe collateral in a security agreement. See Section 36‑9‑108(c) and 36‑9‑203(b)(3)(A).
Definitional Cross References “Collateral” Section 36‑9‑102(a)(12) “Financing statement” Section 36‑9‑102(a)(39)
Cross References Standards for determining the sufficiency of a description of collateral. Section 36‑9‑108.
Section 36‑9‑505. Filing and compliance with other statutes and treaties for consignments, leases, other bailments, and other transactions. (a) A consignor, lessor, or other bailor of goods, a licensor, or a buyer of a payment intangible or promissory note may file a financing statement, or may comply with a statute or treaty described in Section 36‑9‑311(a), using the terms ‘consignor’, ‘consignee’, ‘lessor’, ‘lessee’, ‘bailor’, ‘bailee’, ‘licensor’, ‘licensee’, ‘owner’, ‘registered owner’, ‘buyer’, ‘seller’, or words of similar import, instead of the terms ‘secured party’ and ‘debtor’. (b) This part applies to the filing of a financing statement under subsection (a) and, as appropriate, to compliance that is equivalent to filing a financing statement under section 36‑9‑311(b), but the filing or compliance is not of itself a factor in determining whether the collateral secures an obligation. If it is determined for another reason that the collateral secures an obligation, a security interest held by the consignor, lessor, bailor, licensor, owner, or buyer which attaches to the collateral is perfected by the filing or compliance.
Official Comment 1. Source. Former Section 9‑408.
2. Precautionary Filing. Occasionally, doubts arise concerning whether a transaction creates a relationship to which this Article or its filing provisions apply. For example, questions may arise over whether a “lease” of equipment in fact creates a security interest or whether the “sale” of payment intangibles in fact secures an obligation, thereby requiring action to perfect the security interest. This Section, which derives from former Section 9‑408, affords the option of filing of a financing statement with appropriate changes of terminology but without affecting the substantive question of classification of the transaction.
3. Changes from Former Section 9‑408. This Section expands the rule of Section 9‑408 to embrace more generally other bailments and transactions, as well as sales transactions, primarily sales of payment intangibles and promissory notes. It provides the same benefits for compliance with a statute or treaty described in Section 9‑311(a) that former Section 9‑408 provided for filing, in connection with the use of terms such as “lessor,” consignor,” etc. The references to “owner” and “registered owner” are intended to address, for example, the situation where a putative lessor is the registered owner of an automobile covered by a certificate of title and the transaction is determined to create a security interest. Although this Section provides that the security interest is perfected, the relevant certificate‑of‑title statute may expressly provide to the contrary or may be ambiguous. If so, it may be necessary or advisable to amend the certificate‑of‑title statute to ensure that perfection of the security interest will be achieved.
As does Section 1‑201, former Article 9 referred to transactions, including leases and consignments, “intended as security.” This misleading phrase created the erroneous impression that the parties to a transaction can dictate how the law will classify it (e.g., as a bailment or as a security interest) and thus affect the rights of third parties. This Article deletes the phrase wherever it appears. Subsection (b) expresses the principle more precisely by referring to a security interest that “secures an obligation.”
4. Consignments. Although a “true” consignment is a bailment, the filing and priority provisions of former Article 9 applied to “true” consignments. See former Sections 2‑326(3), 9‑114. A consignment “intended as security” created a security interest that was in all respects subject to former Article 9. This Article subsumes most true consignments under the rubric of “security interest.” See Sections 9‑102 (definition of “consignment”), 9‑109(a)(4), 1‑201(37) (definition of “security interest”). Nevertheless, it maintains the distinction between a (true) “consignment,” as to which only certain aspects of Article 9 apply, and a so‑called consignment that actually “secures an obligation,” to which Article 9 applies in full. The revisions to this Section reflect the change in terminology.
Section 36‑9‑505 South Carolina Reporter’s Comment Section 36‑9‑505 accommodates the parties to a variety of transactions that may give rise to a security interest which must be perfected by filing. For example, some transactions characterized as equipment leases may, in fact, be secured sales of the equipment. In such a transaction Section 36‑9‑505 permits the lessor to file a financing statement using the terms lessor and lessee rather than secured party and debtor. If the transaction is subsequently found to be a secured sale, subsection (b) provides that the financing statement will perfect the lessor’s security interest.
Definitional Cross References “Consignee” Section 36‑9‑102(a)(19) “Consignor” Section 36‑9‑102(a)(21) “Debtor” Section 36‑9‑102(a)(28) “Financing statement” Section 36‑9‑102(a)(39) “Lessee” Section 36‑2A‑103(1)(n) “Lessor” Section 36‑2A‑103(1)(o) “Payment intangible” Section 36‑9‑102(a)(61) “Promissory note” Section 36‑9‑102(a)(65) “Secured party” Section 36‑9‑102(a)(72)
Cross References 1. Article 9 applies to consignments. Section 36‑9‑109(a)(4). 2. Sales of payment intangibles and promissory notes are subject to Article 9. Section 36‑9‑109(a)(3). 3. Security interests created by sales of payment intangibles and promissory notes are automatically perfected. Section 36‑9‑309(3) and (4). 4. Perfection systems that preempt filing under Article 9. Section 36‑9‑311. 5. Standards for determining whether a transaction is a “true lease” or creates a security interest. Section 36‑1‑201(37).
Section 36‑9‑506. Effect of errors or omissions. (a) A financing statement substantially satisfying the requirements of this part is effective, even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading. (b) Except as otherwise provided in subsection (c), a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 36‑9‑503(a) is seriously misleading. (c) If a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 36‑9‑503(a), the name provided does not make the financing statement seriously misleading. (d) For purposes of Section 36‑9‑508(b), the ‘debtor’s correct name’ in subsection (c) means the correct name of the new debtor.
Official Comment 1. Source. Former Section 9‑402(8).
2. Errors. Like former Section 9‑402(8), subsection (a) is in line with the policy of this Article to simplify formal requisites and filing requirements. It is designed to discourage the fanatical and impossibly refined reading of statutory requirements in which courts occasionally have indulged themselves. Subsection (a) provides the standard applicable to indications of collateral. Subsections (b) and (c), which are new, concern the effectiveness of financing statements in which the debtor’s name is incorrect. Subsection (b) contains the general rule: a financing statement that fails sufficiently to provide the debtor’s name in accordance with Section 9‑503(a) is seriously misleading as a matter of law. Subsection (c) provides an exception: If the financing statement nevertheless would be discovered in a search under the debtor’s correct name, using the filing office’s standard search logic, if any, then as a matter of law the incorrect name does not make the financing statement seriously misleading. A financing statement that is seriously misleading under this Section is ineffective even if it is disclosed by (i) using a search logic other than that of the filing office to search the official records, or (ii) using the filing office’s standard search logic to search a data base other than that of the filing office.
In addition to requiring the debtor’s name and an indication of the collateral, Section 9‑502(a) requires a financing statement to provide the name of the secured party or a representative of the secured party. Inasmuch as searches are not conducted under the secured party’s name, and no filing is needed to continue the perfected status of security interest after it is assigned, an error in the name of the secured party or its representative will not be seriously misleading. However, in an appropriate case, an error of this kind may give rise to an estoppel in favor of a particular holder of a conflicting claim to the collateral. See Section 1‑103.
3. New Debtors. Subsection (d) provides that, in determining the extent to which a financing statement naming an original debtor is effective against a new debtor, the sufficiency of the financing statement should be tested against the name of the new debtor.
Section 36‑9‑506 South Carolina Reporter’s Comment Subsection 36‑9‑506(a) provides that minor errors and omissions do not render a financing statement ineffective, unless the error or omission renders the financing statement seriously misleading. Under subsections (b) and (c) a failure to provide the debtor’s name in accordance with Section 36‑9‑503 is seriously misleading unless a search under the debtor’s correct name using the filing officer’s standard search logic would disclose the financing statement.
Definitional Cross References “Financing statement” Section 36‑9‑102(a)(39)
Cross References Sufficiency of the debtor’s name. Section 36‑9‑503.
Section 36‑9‑507. Effect of certain events on effectiveness of financing statement. (a) A filed financing statement remains effective with respect to collateral that is sold, exchanged, leased, licensed, or otherwise disposed of and in which a security interest or agricultural lien continues, even if the secured party knows of or consents to the disposition. (b) Except as otherwise provided in subsection (c) and Section 36‑9‑508, a financing statement is not rendered ineffective if, after the financing statement is filed, the information provided in the financing statement becomes seriously misleading under Section 36‑9‑506. (c) If a debtor so changes its name that a filed financing statement becomes seriously misleading under Section 36‑9‑506: (1) the financing statement is effective to perfect a security interest in collateral acquired by the debtor before, or within four months after, the change; and (2) the financing statement is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the change, unless an amendment to the financing statement which renders the financing statement not seriously misleading is filed within four months after the change.
Official Comment 1. Source. Former Section 9‑402(7).
2. Scope of Section. This Section deals with situations in which the information in a proper financing statement becomes inaccurate after the financing statement is filed. Compare Section 9‑338, which deals with situations in which a financing statement contains a particular kind of information concerning the debtor (i.e., the information described in Section 9‑516(b)(5)) that is incorrect at the time it is filed.
3. Post‑Filing Disposition of Collateral. Under subsection (a), a financing statement remains effective even if the collateral is sold or otherwise disposed of. This subsection clarifies the third sentence of former Section 9‑402(7) by providing that a financing statement remains effective following the disposition of collateral only when the security interest or agricultural lien continues in that collateral. This result is consistent with the conclusion of PEB Commentary No. 3. Normally, a security interest does continue after disposition of the collateral. See Section 9‑315(a). Law other than this Article determines whether an agricultural lien survives disposition of the collateral.
As a consequence of the disposition, the collateral may be owned by a person other than the debtor against whom the financing statement was filed. Under subsection (a), the secured party remains perfected even if it does not correct the public record. For this reason, any person seeking to determine whether a debtor owns collateral free of security interests must inquire as to the debtor’s source of title and, if circumstances seem to require it, search in the name of a former owner. Subsection (a) addresses only the sufficiency of the information contained in the financing statement. A disposition of collateral may result in loss of perfection for other reasons. See Section 9‑316.
Example: Dee Corp. is an Illinois corporation. It creates a security interest in its equipment in favor of Secured Party. Secured Party files a proper financing statement in Illinois. Dee Corp. sells an item of equipment to Bee Corp., a Pennsylvania corporation, subject to the security interest. The security interest continues, see Section 9‑315(a), and remains perfected, see Section 9‑507(a), notwithstanding that the financing statement is filed under “D” (for Dee Corp.) and not under “B.” However, because Bee Corp. is located in Pennsylvania and not Illinois, see Section 9‑307, unless Secured Party perfects under Pennsylvania law within one year after the transfer, its security interest will become unperfected and will be deemed to have been unperfected against purchasers of the collateral. See Section 9‑316.
4. Other Post‑Filing Changes. Subsection (b) provides that, as a general matter, post‑filing changes that render a financing statement inaccurate and seriously misleading have no effect on a financing statement. The financing statement remains effective. It is subject to two exceptions: Section 9‑508 and Section 9‑507(c). Section 9‑508 addresses the effectiveness of a financing statement filed against an original debtor when a new debtor becomes bound by the original debtor’s security agreement. It is discussed in the Comments to that Section. Section 9‑507(c) addresses a “pure” change of the debtor’s name, i.e., a change that does not implicate a new debtor. It clarifies former Section 9‑402(7). If a name change renders a filed financing statement seriously misleading, the financing statement is not effective as to collateral acquired more than four months after the change, unless before the expiration of the four months an amendment is filed that specifies the debtor’s new correct name (or provides an incorrect name that renders the financing statement not seriously misleading under Section 9‑506). As under former Section 9‑402(7), the original financing statement would continue to be effective with respect to collateral acquired before the name change as well as collateral acquired within the four‑month period.
Section 36‑9‑507 South Carolina Reporter’s Comment Section 36‑9‑507 addresses the effect that certain post‑filing events have upon the continued effectiveness of a filed financing statement. Subsection (a) provides that a financing statement remains effective to perfect a security interest that continues in collateral that a debtor has sold or otherwise disposed of. With two exceptions, subsection (b) provides that a filed financing statement is not rendered ineffective because after the filing the information provided in the financing statement became seriously misleading. The first exception arises when a debtor so changes its name that it filed financing statement becomes seriously misleading under Section 36‑9‑506. In that situation the filed financing statement is not effective to perfect a security interest in collateral acquired more than four months after the name change. The second exception can arise when a new debtor becomes bound by a security agreement entered into by the original debtor and the secured party has filed under the name of the original debtor. Section 36‑9‑508(b) provides that if the difference between the names of original debtor and the new debtor causes the filed financing statement to be seriously misleading, that financing statement is not effective to perfect a security interest in collateral acquired by the new debtor more than four months after it became bound as a new debtor.
Definitional Cross References “Agricultural lien” Section 36‑9‑102(a)(5) “Collateral” Section 36‑9‑102(a)(12) “Debtor” Section 36‑9‑102(a)(28) “Financing statement” Section 36‑9‑102(a)(39) “New debtor” Section 36‑9‑102(a)(56) “Original debtor” Section 36‑9‑102(a)(60) “Security interest” Section 36‑1‑201(37)
Cross References 1. A security interest or agricultural lien continues in collateral notwithstanding a sale or other disposition unless the secured party has authorized the disposition free of the security interest or agricultural lien. Section 36‑9‑315(a). 2. If the collateral is transferred to a person located in another jurisdiction a secured party who filed against the transferor in the jurisdiction where the transferor was located must file against the transferee in the jurisdiction where the transferee is located within one year of the transfer in order to retain a perfected security interest in the transferred collateral. Section 36‑9‑316(a)(3). Note that a transferee who takes subject to a security interest under Section 36‑9‑315(a)(1) becomes a debtor. See Section 36‑9‑315(a)(1) Section 36‑9‑102, Official Comment 2.a. As a debtor, the transferee authorized the secured party to file an initial financing statement against the transferee. Section 36‑9‑509(c). 3. Buyer in ordinary course of business takes free of a perfected security interest created by the buyer’s seller. Section 36‑9‑320(a). 4. A licensee in ordinary course of business takes its rights in a nonexclusive license free of a security interest created by the licensor. Section 36‑9‑321(b). 5. A lessee in ordinary course of business takes free of a perfected security interest created by the lessor. Section 36‑9‑321(c). 6. Priority of security interests in transferred collateral. Section 36‑9‑325. 7. Rules for determining whether a change in the debtor’s name renders a filed financing statement seriously misleading. Section 36‑9‑506(b) and (c). 8. When a new debtor becomes bound by a security agreement entered into by an original debtor. Section 36‑9‑203(d) and (e). 9. When a filing against an original debtor perfects a security interest in collateral acquired by a new debtor. Section 36‑9‑508. 10. Priority of security interests created by a new debtor. Section 36‑9‑326.
Section 36‑9‑508. Effectiveness of financing statement if new debtor becomes bound by security agreement. (a) Except as otherwise provided in this section, a filed financing statement naming an original debtor is effective to perfect a security interest in collateral in which a new debtor has or acquires rights to the extent that the financing statement would have been effective had the original debtor acquired rights in the collateral. (b) If the difference between the name of the original debtor and that of the new debtor causes a filed financing statement that is effective under subsection (a) to be seriously misleading under Section 36‑9‑506: (1) the financing statement is effective to perfect a security interest in collateral acquired by the new debtor before, and within four months after, the new debtor becomes bound under Section 36‑9‑203(d); and (2) the financing statement is not effective to perfect a security interest in collateral acquired by the new debtor more than four months after the new debtor becomes bound under Section 36‑9‑203(d) unless an initial financing statement providing the name of the new debtor is filed before the expiration of that time. (c) This section does not apply to collateral as to which a filed financing statement remains effective against the new debtor under Section 36‑9‑507(a).
Official Comment 1. Source. New.
2. The Problem. Section 9‑203(d) and (e) and this Section deal with situations where one party (the “new debtor”) becomes bound as debtor by a security agreement entered into by another person (the “original debtor”). These situations often arise as a consequence of changes in business structure. For example, the original debtor may be an individual debtor who operates a business as a sole proprietorship and then incorporates it. Or, the original debtor may be a corporation that is merged into another corporation. Under both former Article 9 and this Article, collateral that is transferred in the course of the incorporation or merger normally would remain subject to a perfected security interest. See Sections 9‑315(a), 9‑507(a). Former Article 9 was less clear with respect to whether an after‑acquired property clause in a security agreement signed by the original debtor would be effective to create a security interest in property acquired by the new corporation or the merger survivor and, if so, whether a financing statement filed against the original debtor would be effective to perfect the security interest. This Section and Sections 9‑203(d) and (e) are a clarification.
3. How New Debtor Becomes Bound. Normally, a security interest is unenforceable unless the debtor has authenticated a security agreement describing the collateral. See Section 9‑203(b). New Section 9‑203(e) creates an exception, under which a security agreement entered into by one person is effective with respect to the property of another. This exception comes into play if a “new debtor” becomes bound as debtor by a security agreement entered into by another person (the “original debtor”). (The quoted terms are defined in Section 9‑102.) If a new debtor does become bound, then the security agreement entered into by the original debtor satisfies the security‑agreement requirement of Section 9‑203(b)(3) as to existing or after‑acquired property of the new debtor to the extent the property is described in the security agreement. In that case, no other agreement is necessary to make a security interest enforceable in that property. See Section 9‑203(e).
Section 9‑203(d) explains when a new debtor becomes bound by an original debtor’s security agreement. Under Section 9‑203(d)(1), a new debtor becomes bound as debtor if, by contract or operation of other law, the security agreement becomes effective to create a security interest in the new debtor’s property. For example, if the applicable corporate law of mergers provides that when A Corp merges into B Corp, B Corp becomes a debtor under A Corp’s security agreement, then B Corp would become bound as debtor following such a merger. Similarly, B Corp would become bound as debtor if B Corp contractually assumes A’s obligations under the security agreement.
Under certain circumstances, a new debtor becomes bound for purposes of this Article even though it would not be bound under other law. Under Section 9‑203(d)(2), a new debtor becomes bound when, by contract or operation of other law, it (i) becomes obligated not only for the secured obligation but also generally for the obligations of the original debtor and (ii) acquires or succeeds to substantially all the assets of the original debtor. For example, some corporate laws provide that, when two corporations merge, the surviving corporation succeeds to the assets of its merger partner and “has all liabilities” of both corporations. In the case where, for example, A Corp merges into B Corp (and A Corp ceases to exist), some people have questioned whether A Corp’s grant of a security interest in its existing and after‑acquired property becomes a “liability” of B Corp, such that B Corp’s existing and after‑acquired property becomes subject to a security interest in favor of A Corp’s lender. Even if corporate law were to give a negative answer, under Section 9‑203(d)(2), B Corp would become bound for purposes of Section 9‑203(e) and this Section. The “substantially all of the assets” requirement of Section 9‑203(d)(2) excludes sureties and other secondary obligors as well as persons who become obligated through veil piercing and other non‑successorship doctrines. In most cases, it will exclude successors to the assets and liabilities of a division of a debtor.
4. When Financing Statement Effective Against New Debtor. Subsection (a) provides that a filing against the original debtor is effective to perfect a security interest in collateral that a new debtor has at the time it becomes bound by the original debtor’s security agreement and collateral that it acquires before the expiration of four months after the new debtor becomes bound. Under subsection (b), however, if the filing against the original debtor is seriously misleading as to the new debtor’s name, the filing is effective as to collateral acquired by the new debtor after the four‑month period only if a person files during the four‑month period an initial financing statement providing the name of the new debtor. Compare Section 9‑507(c) (four‑month period of effectiveness with respect to collateral acquired by a debtor after the debtor changes its name).
5. Transferred Collateral. This Section does not apply to collateral transferred by the original debtor to a new debtor. Under those circumstances, the filing against the original debtor continues to be effective until it lapses. See subsection (c); Section 9‑507(a).
6. Priority. Section 9‑326 governs the priority contest between a secured creditor of the original debtor and a secured creditor of the new debtor.
Section 36‑9‑508 South Carolina Reporter’s Comment Section 36‑9‑508 applies in situations in which a “new debtor” becomes bound by a security agreement entered into by an “original debtor” and the secured party has filed under the name of the original debtor. Subsection (a) provides the general rule that the filing against the original debtor is effective to perfect a security interest in collateral owned or acquired by the new debtor. Subsection (b) limits this general rule when the difference between the names of the original debtor and the new debtor cause the financing statement filed against the original debtor to be seriously misleading. In that event, subsection (b)(2) provides that the financing statement filed against the original debtor is not effective to perfect a security interest in collateral that the new debtor acquired more than four months after becoming bound as a new debtor. Section 36‑9‑508(b)(2) assumes that a secured party who filed against the original debtor can file an initial financing statement against the new debtor when the difference between the names of the original debtor and new debtor render the filing against the original debtor seriously misleading. The authority to file against the new debtor rests on Section 36‑9‑509(b) that provides that by becoming a debtor under a security agreement a new debtor authorizes the filing of an initial financing statement. Subsection (c) provides that Section 36‑9‑508 does not apply to a transferred collateral on which a security interest remains perfected under Section 36‑9‑507(a). To illustrate, the interplay of Sections 36‑9‑507 and 36‑9‑508 consider the following example. On February 1, SP took a security interest in the current and after acquired inventory and equipment of ABC, Inc., a South Carolina corporation. Also on February 1, SP filed a financing statement in the Secretary of State’s Office in South Carolina naming ABC, Inc. as the debtor and covering ABC, Inc.’s inventory and equipment. On March 1, ABC,. Inc. merged into XYZ, Inc. with XYZ, Inc. surviving the merger. XYZ, Inc. is a South Carolina corporation. As a part of the merger XYZ, Inc., acquired ABC, Inc.’s equipment. As a result of the merger, XYZ, Inc. became a new debtor. SP never filed against the XYZ, Inc. On November 1, XYZ, Inc. filed for relief under the Bankruptcy Code. XYZ, Inc.’s only assets at that time were the equipment originally owned by ABC, Inc. and inventory that XYZ, Inc. had purchased during the months of September and October. Although SP can claim a security interest in the inventory, its security interest is unperfected. The difference between ABC, Inc.’s name and XYZ, Inc.’s name rendered the filing against ABC, Inc. seriously misleading. As a result under Section 36‑9‑508(b)(2) SP’s filing was not effective to perfect its security interest in the inventory which was acquired more than four months after the merger. SP’s security interest in the equipment, however, remained perfected. Assuming that SP’s security interest continued in the equipment under Section 36‑9‑315(a) and 36‑9‑320(a), Section 36‑9‑507(a) provides that the filing against ABC, Inc. remains effective. Therefore, under Section 36‑9‑508(c), the provisions of Section 36‑9‑508 do not apply to the transferred equipment. As a result, SP remains perfected in the equipment even though its filing against ABC, Inc. becomes seriously misleading.
Definitional Cross References “Collateral” Section 36‑9‑102(a)(12) “Financing statement” Section 36‑9‑102(a)(39) “New debtor” Section 36‑9‑102(a)(56) “Original debtor” Section 36‑9‑102(a)(60)
Cross References 1. When a person becomes bound as a new debtor by a security agreement entered into by an original debtor. Section 36‑9‑203(d). 2. Effect of becoming bound as a new debtor. Section 36‑9‑203(e). 3. Priority of a security interest in collateral created by a new debtor and perfected by a financing statement filed against the original debtor which is effective solely under Section 36‑9‑508. Section 36‑9‑326. 4. Rules for determining whether the difference between the names of the original debtor and the new debtor render the financing statement filed against the original debtor seriously misleading. Section 36‑9‑506(b) and (c). 5. Authority of a secured party that filed against the original debtor to file against the new debtor when the filing against the original debtor becomes seriously misleading. Section 36‑9‑509(b)(1).
Section 36‑9‑509. Persons entitled to file a record. (a) A person may file an initial financing statement, amendment that adds collateral covered by a financing statement, or amendment that adds a debtor to a financing statement only if: (1) the debtor authorizes the filing in an authenticated record or pursuant to subsection (b) or (c); or (2) the person holds an agricultural lien that has become effective at the time of filing and the financing statement covers only collateral in which the person holds an agricultural lien. (b) By authenticating or becoming bound as debtor by a security agreement, a debtor or new debtor authorizes the filing of an initial financing statement, and an amendment, covering: (1) the collateral described in the security agreement; and (2) property that becomes collateral under Section 36‑9‑315(a)(2), whether or not the security agreement expressly covers proceeds. (c) By acquiring collateral in which a security interest or agricultural lien continues under Section 36‑9‑315(a)(1), a debtor authorizes the filing of an initial financing statement, and an amendment, covering the collateral and property that becomes collateral under Section 36‑9‑315(a)(2). (d) A person may file an amendment other than an amendment that adds collateral covered by a financing statement or an amendment that adds a debtor to a financing statement only if: (1) the secured party of record authorizes the filing; or (2) the amendment is a termination statement for a financing statement as to which the secured party of record has failed to file or send a termination statement as required by Section 36‑9‑513(a) or (c), the debtor authorizes the filing, and the termination statement indicates that the debtor authorized it to be filed. (e) If there is more than one secured party of record for a financing statement, each secured party of record may authorize the filing of an amendment under subsection (d).
Official Comment 1. Source. New.
2. Scope and Approach of This Section. This Section collects in one place most of the rules determining whether a record may be filed. Section 9‑510 explains the extent to which a filed record is effective. Under these Sections, the identity of the person who effects a filing is immaterial. The filing scheme contemplated by this Part does not contemplate that the identity of a “filer” will be a part of the searchable records. This is consistent with, and a necessary aspect of, eliminating signatures or other evidence of authorization from the system. (Note that the 1972 amendments to this Article eliminated the requirement that a financing statement contain the signature of the secured party.) As long as the appropriate person authorizes the filing, or, in the case of a termination statement, the debtor is entitled to the termination, it is insignificant whether the secured party or another person files any given record. The question of authorization is one for the court, not the filing office. However, a filing office may choose to employ authentication procedures in connection with electronic communications, e.g., to verify the identity of a filer who seeks to charge the filing fee.
3. Unauthorized Filings. Records filed in the filing office do not require signatures for their effectiveness. Subsection (a)(1) substitutes for the debtor’s signature on a financing statement the requirement that the debtor authorize in an authenticated record the filing of an initial financing statement or an amendment that adds collateral. Also, under subsection (a)(1), if an amendment adds a debtor, the debtor who is added must authorize the amendment. A person who files an unauthorized record in violation of subsection (a)(1) is liable under Section 9‑625 for actual and statutory damages. Of course, a filed financing statement is ineffective to perfect a security interest if the filing is not authorized. See Section 9‑510(a). Law other than this Article, including the law with respect to ratification of past acts, generally determines whether a person has the requisite authority to file a record under this Section. See Sections 1‑103, 9‑502, Comment 3.
4. Ipso Facto Authorization. Under subsection (b), the authentication of a security agreement ipso facto constitutes the debtor’s authorization of the filing of a financing statement covering the collateral described in the security agreement. The secured party need not obtain a separate authorization. Similarly, a new debtor’s becoming bound by a security agreement ipso facto constitutes the new debtor’s authorization of the filing of a financing statement covering the collateral described in the security agreement by which the new debtor has become bound. And, under subsection (c), the acquisition of collateral in which a security interest continues after disposition under Section 9‑315(a)(1) ipso facto constitutes an authorization to file an initial financing statement against the person who acquired the collateral. The authorization to file an initial financing statement also constitutes an authorization to file a record covering actual proceeds of the original collateral, even if the security agreement is silent as to proceeds.
Example 1: Debtor authenticates a security agreement creating a security interest in Debtor’s inventory in favor of Secured Party. Secured Party files a financing statement covering inventory and accounts. The financing statement is authorized insofar as it covers inventory and unauthorized insofar as it covers accounts. (Note, however, that the financing statement will be effective to perfect a security interest in accounts constituting proceeds of the inventory to the same extent as a financing statement covering only inventory.)
Example 2: Debtor authenticates a security agreement creating a security interest in Debtor’s inventory in favor of Secured Party. Secured Party files a financing statement covering inventory. Debtor sells some inventory, deposits the buyer’s payment into a deposit account, and withdraws the funds to purchase equipment. As long as the equipment can be traced to the inventory, the security interest continues in the equipment. See Section 9‑315(a)(2). However, because the equipment was acquired with cash proceeds, the financing statement becomes ineffective to perfect the security interest in the equipment on the 21st day after the security interest attaches to the equipment unless Secured Party continues perfection beyond the 20‑day period by filing a financing statement against the equipment or amending the filed financing statement to cover equipment. See Section 9‑315(d). Debtor’s authentication of the security agreement authorizes the filing of an initial financing statement or amendment covering the equipment, which is “property that becomes collateral under Section 9‑315(a)(2).” See Section 9‑509(b)(2).
5. Agricultural Liens. Under subsection (a)(2), the holder of an agricultural lien may file a financing statement covering collateral subject to the lien without obtaining the debtor’s authorization. Because the lien arises as matter of law, the debtor’s consent is not required. A person who files an unauthorized record in violation of this subsection is liable under Section 9‑625(e) for a statutory penalty and damages.
6. Amendments; Termination Statements Authorized by Debtor. Most amendments may not be filed unless the secured party of record, as determined under Section 9‑511, authorizes the filing. See subsection (d)(1). However, under subsection (d)(2), the authorization of the secured party of record is not required for the filing of a termination statement if the secured party of record failed to send or file a termination statement as required by Section 9‑513, the debtor authorizes it to be filed, and the termination statement so indicates.
7. Multiple Secured Parties of Record. Subsection (e) deals with multiple secured parties of record. It permits each secured party of record to authorize the filing of amendments. However, Section 9‑510(b) protects the rights and powers of one secured party of record from the effects of filings made by another secured party of record. See Section 9‑510, Comment 3.
8. Successor to Secured Party of Record. A person may succeed to the powers of the secured party of record by operation of other law, e.g., the law of corporate mergers. In that case, the successor has the power to authorize filings within the meaning of this Section.
Section 36‑9‑509 South Carolina Reporter’s Comment The current statute changes the requirements for an effective financing statement by eliminating the requirement that the debtor sign the financing statement. See Section 36‑9‑502(a) and former Section 36‑9‑402(a). The requirement that the debtor sign a financing statement operated to protect debtors from unauthorized filings. To provide debtors some protection against unauthorized filings under the current law, Section 36‑9‑509(a)(1) provides that a person may file an initial financing statement only if the debtor authorized the filing. Under Section 36‑9‑509 there are three methods for establishing authority to file an initial financing statement. First, under subsection (a)(1) the debtor may authorize the filing in an authenticated record. Second, under subsection (b) a debtor who authenticates a security agreement or becomes bound as a new debtor, authorizes the filing of an initial financing statement covering the collateral described in the security agreement and any proceeds. Third, under subsection (c) a person who becomes a debtor by acquiring collateral subject to a security interest under Section 36‑9‑315(a) authorizes the secured party to file against the collateral and any proceeds. Amendments that add a debtor or add collateral are generally subject to the same authentication requirements as initial financing statements. Subsection (d) addresses the authority to file amendments other than those which add collateral or a debtor. Generally, a person may file such amendments only if the secured party of record authorizes the filing. If a secured party of record fails to honor its obligation with respect to a termination statement, subsection (d)(2) authorizes the debtor to file the termination statement. Subsection (a)(2) provides a special rule for filing a financing statement to perfect on agricultural liens that does not require contractual consent of the debtor.
Definitional Cross References “Agricultural lien” Section 36‑9‑102(a)(5) “Authenticate” Section 36‑9‑102(a)(7) “Collateral” Section 36‑9‑102(a)(12) “Debtor” Section 36‑9‑102(a)(28) “Financing statement” Section 36‑9‑102(a)(39) “Record” Section 36‑9‑102(a)(69) “Secured party of record” Section 36‑9‑511 “Security agreement” Section 36‑9‑102(a)(73) “Termination statement” Section 36‑9‑102(a)(79)
Cross References 1. Requirements for an effective security agreement. Section 36‑9‑203(b). 2. When a security interest continues in transferred collateral. Section 36‑9‑315(a)(1). 3. Requirements for status of secured party of record. Section 36‑9‑511. 4. Secured party’s obligations with respect to termination statements. Section 36‑9‑513.
Section 36‑9‑510. Effectiveness of filed record. (a) A filed record is effective only to the extent that it was filed by a person that may file it under Section 36‑9‑509. (b) A record authorized by one secured party of record does not affect the financing statement with respect to another secured party of record. (c) A continuation statement that is not filed within the six‑month period prescribed by Section 36‑9‑515(d) is ineffective.
Official Comment 1. Source. New.
2. Ineffectiveness of Unauthorized or Overbroad Filings. Subsection (a) provides that a filed financing statement is effective only to the extent it was filed by a person entitled to file it.
Example 1: Debtor authorizes the filing of a financing statement covering inventory. Under Section 9‑509, the secured party may file a financing statement covering only inventory; it may not file a financing statement covering other collateral. The secured party files a financing statement covering inventory and equipment. This Section provides that the financing statement is effective only to the extent the secured party may file it. Thus, the financing statement is effective to perfect a security interest in inventory but ineffective to perfect a security interest in equipment.
3. Multiple Secured Parties of Record. Section 9‑509(e) permits any secured party of record to authorize the filing of most amendments. Subsection (b) of this Section prevents a filing authorized by one secured party of record from affecting the rights and powers of another secured party of record without the latter’s consent.
Example 2: Debtor creates a security interest in favor of A and B. The filed financing statement names A and B as the secured parties. An amendment deleting some collateral covered by the financing statement is filed pursuant to B’s authorization. Although B’s security interest in the deleted collateral becomes unperfected, A’s security interest remains perfected in all the collateral.
Example 3: Debtor creates a security interest in favor of A and B. The financing statement names A and B as the secured parties. A termination statement is filed pursuant to B’s authorization. Although the effectiveness of the financing statement terminates with respect to B’s security interest, A’s rights are unaffected. That is, the financing statement continues to be effective to perfect A’s security interest.
4. Continuation Statements. A continuation statement may be filed only within the six months immediately before lapse. See Section 9‑515(d). The filing office is obligated to reject a continuation statement that is filed outside the six‑month period. See Sections 9‑520(a), 9‑516(b)(7). Subsection (c) provides that if the filing office fails to reject a continuation statement that is not filed in a timely manner, the continuation statement is ineffective nevertheless.
Section 36‑9‑510 South Carolina Reporter’s Comment Subsection 36‑9‑510(a) provides that a filed record is effective only if the person who made the filing was authorized to do so. Subsection (c) provides that untimely continuation statements are ineffective.
Definitional Cross References “Continuation statement” Section 36‑9‑102(a)(27) “Financing statement” Section 36‑9‑102(a)(39) “Record” Section 36‑9‑102(a)(69) “Secured party of record” Section 36‑9‑511
Cross References 1. Conditions for establishing authority to file an initial financing statement or an amendment. Section 36‑9‑509. 2. Requirements for obtaining status as secured party of record. Section 36‑9‑511. 3. Requirements for and effect of filing a continuation statement. Section 36‑9‑513(d) and (e). 4. The filing office is neither obligated nor permitted to inquire into the issue of whether a person presenting a record for filing is authorized to do so. Section 36‑9‑502, Official Comment 2. 5. Debtor’s right to obtain and file a termination statement rendering an unauthorized financing statement ineffective. Section 36‑9‑513. 6. Debtor’s right to |