Three new court decisions set forth surprising—and contradictory—obligations for secured parties: Part 2 – In Re: Charles Clifford McGee

Welcome back to our three-part series on three recent court decisions that have an impact on secured parties in relation to “notice filings.” Today’s post covers the second of the three, In Re: Charles Clifford McGee.

Don’t forget to tell us what you think about the case law by publishing a comment after the post.

Contributed by Tim Hall, Managing Attorney, CT Corporation

In Re: Charles Clifford McGee, (USBC – Northern Dist. of Indiana), Sept. 9, 2010

Facts: In 2001, debtor Charles Clifford McGee borrowed money from Sky Bank and gave it a security interest in the debtor's business assets. The financing statement named US Bank as the secured party, rather than Sky Bank. Several months later, Sky Bank assigned the loan to Sky Financial Securitization Corp IV. After several subsequent assignments, the loan was eventually assigned to US Bank five months after the initial UCC-1 filing.

At Issue: If the financing statement lists a bank which was not originally a party to the loan, and the assignment did not take place before the financing statement was recorded, is the lien properly perfected?

The Court Decision: Although the financing statement reflecting US Bank as the secured party was filed prior to the transfer of the security interest, once it obtained that interest it was and remains perfected. This is not a “floating lien”, rather a simple assignment of a debt and the lien that secured it.

According to the court, the financing statement must contain the name of the debtor and the name of the secured party or its representative, and must describe the collateral subject to the security agreement. These simple requirements comport with the “notice filing” concept embodied in Article 9 of the UCC, indicating that the notice indicates the secured party that filed it may have a security interest in the collateral.

The court also cites previous court decisions consistent with this policy, and confirms that the purpose of the filing statute is to enable the public to know whether personal property is encumbered. The identification of the secured creditor on the financing statement provides interested parties with a starting point to get more information, and financing statements only serve to make certain collateral as potentially subject to a claim.

Discussion

The court offers a contradictory view to that espoused in the Roswell decision, by emphasizing that the UCC index is merely intended to provide general notice, and that searchers will determine the significance and effectiveness of filed records.

Check back tomorrow for the conclusion of the series. Please direct any questions to CT Lien Solutions, or post a comment in the field provided.

Tim Hall has been with CT Corporation for more than 13 years. He spent his first three years as a Team Leader for a UCC Service team, and has been with the Government Relations Team for the past ten years. He is a graduate of The Ohio State University and the Northern Illinois University College of Law, and is a frequent speaker on Article 9 of the UCC.

Comments

[sound equipment rentals]

A secured party is a person or organization that holds a security interest for their own, or another's benefit. For example the person or organization generally lending the money and holding the security attention.

[CT Lien Solutions]

Apologies, please see the revision to the Facts above.

[Alice Campbell]

am I the only one who thinks this writeup doesn't make much sense? Who is Charles Clifford McGee and how is he involved? If USBank was the borrower and got listed as the secured party and then eventually became the secured party after numerous assignments, USBank is both debtor and secured party so where's the beef? The court decision seems to restate the usual. It may contradict Roswell, but that's good news, isn't it?