Recorded Webinar - UCC Financing Statement: Collateral Description Fundamentals

UCC Financing Statement: Collateral Description Fundamentals

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Join CSC® for a free webinar by Paul Hodnefield, associate general counsel, on the fundamentals of UCC financing statement collateral descriptions.

It is essential when filing a financing statement that the secured party sufficiently describes the collateral. Any deficiencies may limit the secured party's ability to enforce its security interest against some or all of the collateral. This program explains the fundament requirements of UCC financing statement collateral descriptions, including the basic concepts of notice filing, the Article 9 collateral rules and identifies many of the risks awaiting the unwary filer. In addition, best practice suggestions will be offered through the program.

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Webinar Transcript


Anu: Hello, everyone and welcome to today's webinar, "UCC Financing Statement Collateral Description Fundamentals." My name is Anu Shah and I will be your moderator. Joining us today is Associate General Counsel, Paul Hodenfield. With that, I will turn it over to Paul to kick off our presentation.


Paul: Thanks, Anu. At CSC, it's my responsibility to be the subject matter resource for our UCC filing services. In that capacity, I monitor legislation, case law and filing office rules. In addition, I'm frequently called on to deal with troubleshooting issues related to rejections. As a result, I come across a lot of information about the UCC search and filing process. Today, I'm going to share some of that information with you on the topic of UCC financing statement collateral descriptions.

A proper description of the collateral is an essential component of a sufficient UCC financing statement. In some respects, the rules are simple. However, there are traps for the unwary lurking in the details. Errors or omissions in the financing statement collateral description or subsequent collateral amendments can prove costly for the secured party as it can prevent enforcement of the security interests and some or all of the debtor's assets.

What I plan to do today is provide the fundamentals describing collateral in a UCC financing statement. I'll begin with some basic concepts of the Article 9 filing system as it applies to collateral. I'll go ahead and explain the Article 9 collateral rules and discuss several common collateral issues that arise when filing financing statements, including collateral amendments and wrap up with some search considerations. At the end, we'll be able to address some of your questions.

With that, I'll go ahead and begin with the essential concepts of collateral under Article 9 of the UCC. Again, today, by the way, my focus is on the financing statement, not collateral for other purposes. So, beginning with some essential concepts, it is critical to understand when it comes to collateral that the UCC is a notice filing system. What gets filed are not liens or other operative documents. What gets filed are merely notices that a security interest may exist. UCC records are nothing that can be enforced. They are merely notices related to other documents, which are the enforceable documents.

Because they are mere notices, UCC records provide very minimal information. In other words, just enough to put somebody on notice that there is a claimed security interest out there and therefore as mere notices, these documents just provide minimal information. They don't include typically terms and conditions and dollar amounts and other explanatory information and they don't provide necessarily all the details regarding the collateral that an interested party may want.

Because of this . . . and it is actually intended that under Article 9, interested parties must conduct further inquiry to learn the full state of affairs. They cannot rely solely on the filed UCC records. They are expected to look beyond the public record. The collateral description is no different than the rest of the financing statement. It too is just a notice of what's covered by the security interest, therefore it is often necessary to conduct further inquiry of the parties involved to learn the specifics of what's covered by the collateral description.

There are two distinct records that are related to each other but are different that require a collateral statement in the UCC process. There is the security agreement, which is the document that creates the security interest. Then there is the financing statement, which perfects the security interest. They have different purposes. The security agreement is there to define the collateral that's subject to the security interest. The financing statement merely provides notice.

Because they have different purposes, the collateral rules are a little bit different between the security agreement and the financing statement. When it comes to a security agreement, the rules for sufficiency are spelled out in UCC section 9-108. For the financing statement, the rules are spelled out in section 9-504. Now, 9-504 refers back to 9-108, but I'll go into more details on that. The important thing to take away from this is that these are two distinct records and our focus today is on the financing statement, not the security agreement.

It's also important to understand what effect errors or omissions in a collateral statement have. An error or omission in the collateral, it depends on the severity of the error or omission, but minor errors in the collateral do not make a financing statement seriously misleading. More serious errors potentially can. Typically, the minor error rule will apply to errors or omissions in financing statements if it is only a minor error. Bear in mind that being that this is a notice filing system, there tends to be kind of an assumption that errors in the collateral are minor. But you cannot always make that assumption, of course.

Another essential concept to understand is the role of the filing office when it comes to collateral. The filing office's role is actually very limited with respect to collateral. It has almost no interest in the collateral and that's because filing offices don't even look at the collateral statement or take any action based on the content of the collateral description. It's not within their role at the filing office. The filing office role is to index records and collateral has no effect on that indexing. So, they don't look at the collateral. They don't take action on the collateral. It really is irrelevant to the filing offices.

But there is one exception. There are a few filing offices out there that will screen collateral that's submitted electronically for certain words and phrases that are used by certain anti-government groups that use the UCC system to harass and defraud and intimidate public officials. So, they have special screening for that and might kick out a financing statement that has certain words in the collateral. There's very few states that do that, but there are some that do look at the collateral for that purpose.

Another essential concept I want to talk about is the scope of the collateral that might be described in a financing statement. There are certain exclusions from filing for perfection under Article 9. Some types of collateral, really don't file a financing statement to perfect.

Because they can't be perfected by filing under the UCC, the issue is not really worrying about how to describe such collateral on a UCC financing statement, it's whether to file a financing statement at all. These include types of collateral where perfection under the UCC has been preempted by federal law. This is going to be most common with respect to registered copyrights. Security interest in registered copyrights can only be perfected with the registration with the copyright office.

In civilian aircraft, security interest can only be perfected by filing with the FAA and in many cases also the international registry of mobile assets. In certain vessels, they have to be registered with the Coast Guard Vessel Documentation Center. There's other types as well, like rolling stock or barges that are used in inland rivers. These may have to be registered with the surface transportation board.

The filing requirement is certain types of collateral if they are governed by a state certificate of title law, which is going to be most common with a motor vehicle and similar goods. In that case, if the state law provides for perfection through the certificate of title, then you don't perfect by filing. So, motor vehicles, sometimes boats and ATVs are going to fall into this category depending on the particular state's law.

There is an exception to this, though, to be aware of. That's that if the collateral would be inventory in the hands of the debtor and the debtor is engaged of selling goods of the kind, then a financing statement would be required to perfect the security interest in that type of collateral. Likewise, certain other types of assets such as deposit accounts can't be perfected by filing, only by control. Again, this type of collateral is outside the scope of this presentation. We're focusing on collateral descriptions for purposes of the financing statement.

So, with that, I want to move on now to the general rules for collateral under Article 9. First thing is what is collateral under Article 9. Well, it just simply means the property that's subject to the security interest or agricultural lien and it specifically includes proceeds of the collateral through which a security interest attaches. It includes accounts, chattel paper and promissory notes that have been sold rather than are subject to a security interest. They're treated as if they're subject to a security interest. And the term collateral also extends to goods that are the subject of a consignment in certain cases. So, consigned goods may be considered collateral for purposes of Article 9.

Now, when it comes to sufficiency of a financing statement under Article 9, the financing statement must provide an indication of the collateral that the security interest covers. Although it must include that for the sufficiency of a record, surprisingly omission of the collateral is not a reason for rejection by the filing office.

Why is this? Well, the reason has to do with the reasons for rejection under Article 9 versus the requirements for sufficiency. Filing offices are not concerned with the effectiveness of the record. Their concerns and the rules applicable to filing offices are based on their ability to index a record. Because the reasons for rejection are based on the ability to index the record and collateral does not affect the ability of a filing office to index the record, it only affects the effectiveness of the record, the absence or presence of collateral. Therefore, their reasons for rejection do not include omission of collateral. It's up to the filer to get it right to make sure the collateral is included.

As a result, it is quite possible and it does happen where financing statements will be filed without any collateral whatsoever. It will be a blank field in there. The filing office simply has no grounds to reject the record. If you see one of these in conducting a search, it's probably not going to be sufficient because a collateral statement is required. However, always check to see if there's collateral attached as an attached schedule or something like that. But bear in mind, filing offices will file without a collateral description.

Now, as mentioned, the sufficiency of a financing statement requires a collateral description. The sufficiency of that collateral description is determined under section 9-504, which refers to 9-108, specifically a financing collateral description is sufficient if it describes the collateral pursuant to section 9-108. Well, under 9-108, the collateral description is sufficient if it reasonably identifies what is described. This rule applies both to the security agreement and the financing statement.

But what does it mean to reasonably identify the collateral? Well, 9108b explains what constitutes reasonable identification. That can be a specific listing of the collateral. It can be a description by category. It can be a description of the collateral by a type defined in the UCC. It can be by quantity. It can be formula or procedure or any other method that identifies the collateral or where it's objectively determinable what the identity of the collateral is. As a practical matter, most collateral descriptions are going to provide either a specific listing or a description by type. Those are the most commonly used methods.

Now, I mentioned that a type of collateral defined by the UCC sufficiently indicates the collateral. There are a number of terms defined in the UCC that can be used to describe the collateral including accounts, chattel paper, equipment and on down the line. All of these are commonly used when describing collateral in a financing statement collateral description.

However, there are some exceptions to the ability to describe collateral by a defined type. Those are found in 9-108(e). These include commercial tort claims. Commercial tort claims cannot be described just by type. In fact, they have to exist at the time the UCC record is filed. Same thing with consumer transactions involving consumer goods, security entitlements, etc. These cannot be described by type. They can be described by type only if there is an additional description to provide more specific information about these. So, describing by type alone is not sufficient for these types of collateral. It requires more specific identifying information in order to describe them that way.

There is also under Article 9 the ability to use a super-generic collateral description on a financing statement. This is found in section 9-504. What it says is that the financing statement sufficiently indicates the collateral if it provides an indication that it covers all assets or all personal property of the debtor.

Now, a word of caution here, while it says this in section 9-504, 9-504 applies only to the financing statement. It does not apply to the security agreement. Super-generic description does not reasonably identify the collateral for purposes of a security agreement. There's case law out there supporting this, the Hintze case I mentioned or I cite in here is one example. The grant of the security interest had all of maker's assets in a promissory note. The court said that was not sufficient to create an enforceable security interest.

Well, why the difference? Well, the reason is that when it comes to security agreements and financing statements, they have different purposes. The financing statement is merely a notice. Therefore, there's really no conflict between the rules for the security agreement and that for a financing statement.

The financing statement is merely a notice. It only has to reasonably indicate what's covered, putting somebody on notice that the financing statement covers all of the debtor's assets is sufficient in a notice situation. But because the security agreement specifically defines what collateral is subject to the security interest, that requires a little bit more detail.

Another reason for the difference is that when it comes to financing statements, the idea with the super-generic description is also to facilitate electronic filing. After all, which is easier to file? A blanket collateral description such as this, which includes everything, or perhaps a description that references an attached schedule that might go pages and pages of items that have been specifically described. So, you can either do it this way or you can do it with the long attachments or is it simpler to use two words, all assets.

By using all assets, it eliminates the need for long descriptions, which can be more complicated, create more room to accidentally omit something, same thing with eliminating the need for long schedules of attachments. This is just one way to go about it. The takeaway from this is that the super-generic collateral description is perfectly fine for use on a financing statement. Do not use it for the security agreement and in fact, it is very helpful for use on a financing statement, especially when filing electronically.

What about after acquired collateral? The general rule under Article 9 is that a security agreement may provide for a security interest in after acquired collateral. However, a financing statement does not need to refer to after acquired collateral. The reason being that the word equipment, for example, that is a defined term in Article 9. It covers all equipment regardless of when it was acquired for purposes of the financing statement. Now, whether the security interest attaches to all the equipment is a different story. That is determined as a matter of contract interpretation, not an Article 9 rule.

So, the thing to remember about after acquired collateral is that really whether the security interest extends to after-acquired collateral is a contract issue and really doesn't depend on the contents of the financing statement unless the financing statement were somehow to limit it and say all existing collateral only or something like that. Otherwise, it's a matter of contract interpretation. So, if you do want to cover after acquired collateral, it's important to make sure the security agreement includes after acquired collateral. It's not as important to do that on the financing statement.

I also want to mention proceeds of the collateral. I'm not going to spend a lot of time on this due to our time limitations today. But the collateral does include proceeds. So, a security interest will attach to identifiable proceeds of the collateral and it will automatically perfect the security interest in such proceeds is automatically perfected for a period of time if the security interest in the original collateral was perfected. That automatic perfection will continue for a period of time unless a secured party fails to satisfy certain conditions, namely to make sure the financing statement covers the type of proceeds.

If the proceeds are goods rather than accounts or money, that type of thing, then there are special rules in Article 9 for determining the extent to which the proceeds are identifiable if they're comingled in goods. But really, it's up to the secured party to be able to trace the proceeds. So, those are the general proceeds rules. Now I want to move on and talk about some of the common issues that arise when describing collateral under Article 9 and some of the common questions that arise when describing collateral under Article 9.

I'll begin with purchase-money security interests. When it comes to describing purchase-money security interests under Article 9, the regular Article 9 rules apply. There are no special requirements. In fact, there's a case I cite here, Key Bank versus Huntington Bank. What happened in this one is that Key Bank had a blanket security interest in all the debtor's assets. Later Huntington Bank provided purchase-money financing of three pieces of equipment for the debtor and described the collateral as simply equipment in its financing statement.

Later, the debtor defaulted and Key Bank argued that Huntington was not entitled to purchase-money priority in the equipment because it failed to specifically describe the equipment and as a result, Key Bank had no idea what specific equipment was covered by the financing statement. The court rejected that argument, noting that Key Bank had a duty to inquire further, that there are no special rules when it comes to the description of a purchase-money security interest. As a result, Huntington did hold a purchase-money security interest in that collateral.

A couple of other items of purchase-money. One is that purchase-money collateral or a financing statement may include both purchase-money collateral and non-purchase money collateral because a purchase-money collateral may also secure a non-purchase-money obligation and vice versa . . . or not vice versa, sorry. In other words, some of the described collateral in a financing statement, may be purchase-money collateral while some is not.

The filer simply doesn't have to distinguish between the purchase-money collateral and the non-purchase-money collateral. That's not their job. Whether the collateral is subject to a purchase-money security interest can only be determined through additional research. It doesn't matter what the financing statement says.

The application or qualification of interest as a purchase-money security interest is going to be determined by the secured party's compliance with the Article 9 purchase-money rules, not necessarily whether the financing statement specifically says purchase-money. In fact, even if a collateral statement specifically says that it is a purchase-money security interest, that does not necessarily make it so. Again, this is something that can only be determined through investigation outside of the public record.

One item that comes up a lot is the issue of serial numbers and model numbers for equipment and other goods. I'm frequently asked, "Do we have to provide serial numbers and model numbers?" The answer to that under Article 9 is generally no. Article 9 doesn't require a specific description. It doesn't require that specific a description, anyway. They're generally not required. The same collateral can be described many different ways that may or may not involve serial or model numbers.

One concern that I frequently hear is if we do provide a serial or model number, what happens if there's an error in it. Well, the effect of an error in a serial or model number is going to be subject to the minor error rule in 9-506(a). Minor errors don't make the financing statement seriously misleading. In fact, errors in serial model numbers as a general rule do not make a financing statement seriously misleading, at least minor errors don't, a digit here or there isn't necessarily going to be a big deal.

There is plenty of case law out there on serial numbers. One case I cite here, Maxus Leasing, in this case, the secured party made an error in the serial number of a crane and the court ruled that that error did not make the financing statement seriously misleading. After all, those who search the records do have a duty of further inquiry. If it looks like it's pretty close, they better check a little closer to verify whether or not the particular equipment is actually subject to the security interest.

However, it can rise to the level where a financing statement is made seriously misleading by errors in serial or model numbers. However, I only have found one case where that occurred. That was in a case called Pickle Logging. What happened here is the secured party made an error in both the model number and serial number of the equipment and the mistake in model number corresponded to other equipment owned by the debtor that was not subject to the security interest.

Because of the two errors, the court determined that was seriously misleading and therefore the financing statement was not effective. However, the court also noted in dicta that had the error been just to the model number or just to the serial number, the outcome might have been different. So, really, what it boils down to is what is the best practice when it comes to serial model numbers, that's up to each lender to determine whether to include these numbers or not. There's pluses and minuses each way and really it boils down to a business decision.

But one other thing I want to point out when it comes to serial and model numbers, there can be unintended consequences by providing these numbers if they are more than nine digits long. The reason is that if they are more than nine digits long, sometimes state redaction, automated redaction routines are programmed to recognize them as Social Security numbers. We have seen cases like this, where even if the serial number is provided, the filing office will end up redacting it. It doesn't happen very often, but it does happen, especially when numbers go over nine digits. So, just be aware of that.

Another issue that sometimes arises is what about refence to an external document for the collateral? You'll sometimes see things like, "See exhibit A," attached here too or all collateral is described in the master security agreement, something along that line. As a general rule, this is a perfectly acceptable method of providing the collateral statement referring to an attached document. In fact, you can even attach images of documents with many electronic filing systems around the country. So, it's not unusual to refence some attached schedule, some attached exhibit or some other document.

However, in doing this, it is critical to make sure that the referenced document is attached. If it isn't attached, there's no collateral. There are some cases on there. One is in Re: Lynche. Here it referenced the collateral statement simply referenced . . . it was actually handwritten, but it referenced the general business security agreement for the collateral. It didn't say anything more than that. The general business security agreement was not attached. As a result, the court said that there was no collateral and it was seriously misleading.

There was also a similar case that arose out of an in lieu financing statement following the adoption of revised Article 9 back in the early 2000s. In that, a secure party filed an in lieu financing statement in a new state and referenced the old financing statement in a different state for the collateral description but did not attach that financing statement and the court went ahead and said that because there was no collateral attached, there was no collateral provided.

Therefore, the financing statement was not sufficient. It wasn't enough to reference a document that was on file in another state, especially since once that document in the other sate lapsed, it would drop off of the index and would no longer be available. Bottom line, if you reference an attached document for the collateral, make sure it is attached.

Intellectual property assets are also sometimes confusing for filers. There are different types out there. There's of course copyrights, both registered and unregistered, which are treated differently, patents and trademarks, domain names. There's other types of intellectual property out there as well.

Under Article 9, these assets generally fall within the term general intangibles. It is also common to describe them in more detail, especially with domain names or patents and trademarks can be specifically described. The issue is it's not always clear whether perfection by filing is sufficient because these are sometimes subject to federal law and there is a registration system with the US patent and trademark office for patents and trademarks. There's a registration system at the copyright office. However, perfection by filing is required unless these are preempted by federal law, it's just not always clear whether federal law preempts.

So, it's not an entirely settled issue. So, because of that, best practice when filing on these types of collateral is to describe them in the UCC financing statement and if you can register it with the US patent and trademark office, do so. Perfecting security interest in a registered copyright always has to be done through the US Copyright Office. An unregistered copyright, it's not entirely clear. There's nothing that can be filed with the US copyright office to perfect a security interest in an unregistered copyright. Therefore, best practice to file a financing statement for that.

So, bottom line, best practice, perfect by filing under the UCC with a description of either general intangibles or the specific IP assets and if possible, perfect in the appropriate government office or at least register the security interest in the appropriate US government office, US patent and trademark office or the copyright office.

Another area that sometimes can be confusing is the description of collateral for fixtures. The word fixtures or super-generic description are generally sufficient, as well as a specific description of the goods. However, a specific description of the goods or a super-generic description doesn't include the word fixtures. Now, when it comes to a fixture filing, one of the requirements for a fixture filing is that the financing statement describe . . . or the financing statement must indicate that it covers goods of the kind. So, if a UCC fixture filing does not say fixtures, then it arguably isn't sufficient under section 9-502(b).

So, there is a checkbox indication on the form. It's not part of the collateral statement. It is used to indicate that the financing statement covers goods of the kind, that they cover fixtures. This is the way to do it when it's a specific description of goods and doesn't include the word fixtures or if it's a super-generic description.

Often times, it's a good practice to just check that fixtures box every single time and get in the habit of doing that. However, do not rely on that box to be the collateral statement because it is not part of the collateral. It is an indication that the collateral includes fixtures but it is not by itself a collateral statement. So, checking that box, don't rely on that as the fixtures collateral description for purposes of a fixture filing.

Also, another thing to consider is the courts determine whether goods are fixtures on a case by case basis. So, it's not always safe to assume that any particular goods are going to be determined to be fixtures. And if there's any question, describe the goods both as if they are fixtures and if they are not fixtures, describe it both ways and then that way whatever a court might decide as to whether they're a fixture or not, they're covered. Of course, on a fixture filing, you can't perfect in non-fixtures by filing at the county level.

The good news is that under Article 9, fixtures can be perfected both at the state and at the county level. Under Article 9, security interest and fixtures can be perfected by filing in the central filing office of the state where the debtor is located. It can be done by saying fixtures. It can be a specific description of the goods. It can be done by the super-generic description. In fact, it's very common in collateral descriptions to include as part of the boilerplate all fixtures or records that are filed at the state level.

The disadvantage to filing just at the state level is that there's a priority impact in relation to recorded encumbrances. It's going to be subordinate to recorded encumbrances. So, for the best priority options, it's a good idea to file as a fixture filing and in addition, file at the state level, state where the debtor is located. The advantage to filing at the state level as well as a fixture filing is that it can cover both fixtures and it can also cover equipment or whatever the fixtures would be if they were determined not to be fixtures. So, you can get it all covered in one and perfect.

Some other issues that sometimes arise what happens if the collateral description and the security agreement is different from the collateral description in the financing statement. Note that as a general rule, there's no need for the financing statement to exactly duplicate the collateral description found in the security agreement. But what if they have a substantial difference. In other words, one covers more assets than the other. Well, in that case, the narrower collateral description will normally apply.

For example, in the case I have cited here, Helms versus Certified Packaging, the security agreement did not include commercial tort claims. The financing statement, however, said all assets. Well, an issue was whether the security interest attached to a commercial tort claim. The court said you take the narrower of the two because the security agreement didn't cover it. That was the grant to the security interest, the fact that it was all assets in the financing statement did not extend the security interest to the commercial tort claim that was not described.

Conversely, in the Holiday House case I have here, a financing statement had a narrower description of the collateral than the security agreement. As a result, the security interest was limited to the assets described in the financing statement. So, remember, if there's a difference between the security agreement and the financing statement, the narrower collateral description will apply.

Another issue that pops up, what happens if the secured party uses terms in the collateral description that are defined between the debtor and the secured party but may not be defined terms in Article 9 or may be defined differently in Article 9. When using specifically defined terms like that, it's generally a good idea to make sure those definitions are included in the collateral statement to avoid any risk of a court finding that it wouldn't be sufficient.

Another issue that pops up sometimes is filers will restrict or often times inadvertently restrict their security interest to collateral at a certain location, all equipment located at 123 Main Street, something along that line. The problem here is that the courts will generally enforce that. If there is some limitation language in there, any type of limitation, the courts may limit the scope of the security interest.

For example, going back to that Holiday House case, the financing statement referenced inventory delivered pursuant to a particular consignment in the security agreement. But broader language in the consignment and security agreement applied. Again, the court restricted it to the narrower of the two because of the restrictions.

So, the important thing is this is a potential trap for the unwary if in the collateral statement it puts qualifications on the collateral. For example, it says just the collateral that was assigned and delivered to a secured party. Uh-oh. That may restrict collateral beyond what the secured party wanted. So, be careful about any limiting language in the collateral unless it's intended to do that. Another trap is providing just an address because a financing statement cannot perfect a security interest in real property, providing just an address may not be enough.

There's a case related to the example I have at the bottom of the screen there where the court said describing it as just a grocery store located at that particular address didn't give any indication of what this covered. Was it fixtures, accounts, inventory at that address? If the court couldn't figure out what it meant, obviously nobody else could and therefore the financing statement was insufficient. So, bottom line on it, don't inadvertently limit the scope of the security interest.

One other potential trap arises now that we are using more advanced technology and doing electronic filing, there can be electronic filing glitches that occur. For example, here we have collateral that was submitted for electronic filing through a state's website. Because something in there, some symbol within this collateral triggered a programming glitch on the state's end, this is all the collateral that made it into the index. So, this does happen. It's not frequent. But it does happen when filing electronically.

My recommendation is whenever filing, whether it be electronically or on written form, it is critical to check the filing acknowledgement and make sure whatever got submitted actually made it into the index because with a purely electronic filing, if the collateral didn't make it into the index, it's not clear whether this was an indexing error or some other issue, the filer may be held responsible for not getting it in there. So, always review the filing acknowledgement and take whatever action is necessary to get the information in the record.

Next, I want to talk briefly about amending collateral, an amendment to add collateral. The purpose here is to add more collateral within the scope of the financing statement. It's very simple to do, just indicate it's a collateral change, check the box to add collateral and describe the collateral to be added.

The effect on priority with respect to added collateral, an amendment to add collateral has no effect on priority with respect to existing collateral, but with respect to the added collateral, it is only effective for priority from the date the amendment was filed. As a result, a financing statement can have different priority dates for different collateral depending on when they were added to the financing statement.

An amendment to add collateral can also be used to add permissive records to the financing statement, things such as a subordination agreement or separation agreement, checking the collateral ad box doesn't affect the existing collateral and it will allow the ability to get these other documents that are not required by Article 9 into the record. That's really the only way to do it in many cases because the filing office may reject if they're submitted without a checked action.

Also, if you are going to reference attached exhibits or schedules, make sure to reference that in the collateral field on the amendment form. This is sometimes referred to as a partial release. What it does is it deletes the described collateral from the scope of the financing statement. So, the secured party will become unperfected in the described collateral, fairly straightforward. Just check the delete box and describe the collateral to be deleted.

An important amendment is the amendment to restate collateral. This is an amendment that is intended to allow multiple additions and deletions on one form to avoid the need for filing multiple amendments. What it does in effect is it replaces all prior collateral descriptions. So, when an amendment to restate collateral is filed, it maintains the original priority for any collateral that was covered by the previous collateral descriptions.

Anything that's added through a restated collateral description is just like a collateral add. The financing statement will only have priority for the added collateral from the date the restated collateral was filed. Again, it's fairly straightforward, collateral change, check the restate box and then provide the full collateral description. But there is a trap in in using the restated collateral description. Any error or omission could result in the loss of perfection or priority with respect to the omitted collateral.

There is a case on this, Northern Beef Packers. What happened here was that the secured party had a blanket security interest described on its financing statement. Later, it took two additional pieces of collateral and it filed an amendment to restate the collateral and it described only the new two pieces of collateral, the two additional assets.

Later the debtor defaulted and the secured party security interest was challenged by the trustee and as a result, the court agreed that because the financing or because the restated collateral description replaced all prior collateral descriptions and did not include the blanket language, the secured party was perfected only in the additional items described in the restated collateral.

So, bottom line, with the restated collateral amendment, it's a very useful tool when used properly. Just remember that it always has to provide the full collateral description as if it was an initial financing statement. Anything that's omitted, the secured party is going to be unperfected.

There's also an amendment to assigned collateral. This is misleading because it is not a collateral amendment. It is an assignment of the right to amend the financing statement. The effect of this is not to change the collateral in any way. All it does is add a secured party of record who has authority to amend the financing statement and any such amendment will only affect the collateral that has been assigned on that record.

Just to wrap up, when it comes to conducting searching, I want to . . . when in interpreting collateral descriptions in a search, it's important to remember that from a searching perspective, the same collateral can be described many different ways. It can be that John Deere Model 350 bulldozer, serial number 12345. It can be a John Deere bulldozer, Model 350, Model 350. It could be inventory. It could be equipment. It could be covered under all assets or all personal property. There's many different ways.

The courts are going to address the sufficiency of the description on a case by case basis. By then, it's always too late to take any action. It's not always possible from a searching perspective to determine exactly what's covered from a financing statement alone and how the courts are going to interpret it.

It's one of the reasons why a searcher should give the filer the benefit of the doubt if there's any question as to whether a particular collateral is covered until after conducting further inquiry of the parties involved. So, it's necessary to conduct further investigation to learn specifically what's covered and then contact the parties involved to determine the details of the transaction.

Well, with that, I'm going to wrap up the presentation.


Anu: Well, folks, we have run out of time. If we didn't get to your question, we will contact you with a response after the webinar. Paul, thank you very much for the information. The presentation was great. Folks, thank you for joining us this morning. We hope to see you next time.