North Carolina § 25-9-507 - Effect of certain events on effectiveness of financing statement.

§ 25-9-507. Effect of certain events on effectiveness of financing statement.

Disposition. - 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. Information becoming seriously misleading. - Except as otherwise provided in subsection (c) of this section and G.S. 25-9-508, 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 G.S. 25-9-506. Change in debtor's name. - If the name that a filed financing statement provides for a debtor becomes insufficient as the name of the debtor under G.S. 25-9-503(a) so that the financing statement becomes seriously misleading under G.S. 25-9-506: The financing statement is effective to perfect a security interest in collateral acquired by the debtor before, or within four months after, the filed financing statement becomes seriously misleading; and The financing statement is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the filed financing statement becomes seriously misleading, unless an amendment to the financing statement which renders the financing statement not seriously misleading is filed within four months after the financing statement became seriously misleading. History (1899, cc. 17, 247; 1901, cc. 329, 704; 1903, c. 489; 1905, cc. 226, 319; Rev., s. 2055; 1907, c. 843; 1909, c. 532; P.L. 1913, c. 49; C.S., s. 2490; 1925, c. 285, s. 1; 1931, c. 196; 1933, c. 101, s. 6; 1945, c. 182, s. 2; c. 196, s. 2; 1951, c. 926, s. 1; 1955, c. 386, s. 1; 1957, c. 564; 1961, c. 574; 1965, c. 700, s. 1; 1969, c. 1115, s. 1; 1975, c. 862, s. 7; 1983 (Reg. Sess., 1984), c. 1116, s. 43; 1989, c. 523, s. 7; 2000-169, s. 1; 2012-70, s. 12.) AMENDED OFFICIAL COMMENT (2010 EDITION) 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)(1). 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)(1), 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 seriously misleading have no effect on a financing statement. The financing statement remains effective. It is subject to two exceptions: sections 9-507(c) and 9-508. 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 cases in which a filed financing statement provides a name that, at the time of filing, satisfies the requirements of section 9-503(a) with respect to the named debtor but, at a later time, no longer does so. Example 1: Debtor, an individual whose principal residence is in California, grants a security interest to SP in certain business equipment. SP files a financing statement with the California filing office. Alternative A is in effect in California. The financing statement provides the name appearing on Debtor's California driver's license, "James McGinty." Debtor obtains a court order changing his name to "Roger McGuinn" but does not change his driver's license. Even after the court order issues, the name provided for the debtor in the financing statement is sufficient under section 9-503(a). Accordingly, section 9-507(c) does not apply. The same result would follow if Alternative B is in effect in California. Under section 9-503(a)(4) (Alternative A), if the debtor holds a current (i.e., unexpired) driver's license issued by the State where the financing statement is filed, the name required for the financing statement is the name indicated on the license that was issued most recently by that State. If the debtor does not have a current driver's license issued by that State, then the debtor's name is determined under subsection (a)(5). It follows that a debtor's name may change, and a financing statement providing the name on the debtor's then-current driver's license may become seriously misleading, if the license expires and the debtor's name under subsection (a)(5) is different. The same consequences may follow if a debtor's driver's license is renewed and the names on the licenses differ. Example 2: The facts are as in Example 1. Debtor's driver's license expires one year after the entry of the court order changing Debtor's name. Debtor does not renew the license. Upon expiration of the license, the name required for sufficiency by section 9-503(a) is the individual name of the debtor or the debtor's surname and first personal name. The name "James McGinty" has become insufficient. Example 3: The facts are as in Example 1. Before the license expires, Debtor renews the license. The name indicated on the new license is "Roger McGuinn." Upon issuance of the new license, "James McGinty" becomes insufficient as the debtor's name under section 9-503(a). The same results would follow if Alternative B is in effect in California (assuming that, following the issuance of the court order, "James McGinty" is neither the individual name of the debtor nor the debtor's surname and first personal name). Even if the name provided as the name of the debtor becomes insufficient under section 9-503(a), the filed financing statement does not become seriously misleading, and section 9-507(c) does not apply, if the financing statement can be found by searching under the debtor's "correct" name, using the filing office's standard search logic. See section 9-506. Any name that satisfies section 9-503(a) at the time of the search is a "correct name" for these purposes. Thus, assuming that a search of the records of the California filing office under "Roger McGuinn," using the filing office's standard search logic, would not disclose a financing statement naming "James McGinty," the financing statement in Examples 2 and 3 has become seriously misleading and section 9-507(c) applies. If a filed financing statement becomes seriously misleading because the name it provides for a debtor becomes insufficient, the financing statement, unless amended to provide a sufficient name for the debtor, is effective only to perfect a security interest in collateral acquired by the debtor before, or within four months after, the change. If an amendment that provides a sufficient name is filed within four months after the change, the financing statement as amended would be effective also with respect to collateral acquired more than four months after the change. If an amendment that provides a sufficient name is filed more than four months after the change, the financing statement as amended would be effective also with respect to collateral acquired more than four months after the change, but only from the time of the filing of the amendment. Transition Provisions. - For transition provisions related to the 2010 amendments to Article 9 by Session Laws 2012-70, see the Appendix following Part 7 at the end of this Article. Session Laws 2012-70, s. 26(a), (b), provides: "(a) Pre-Effective-Date Transactions or Liens. - Except as otherwise provided in Part II of this act, this act applies to a transaction or lien within its scope, even if the transaction or lien was entered into or created before this act becomes effective [July 1, 2013]. "(b) Pre-Effective-Date Proceedings. - This act does not affect an action, case, or proceeding commenced before this act becomes effective [July 1, 2013]." Editor's Note. - Session Laws 2012-70, s. 27, provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the 2010 Amendments to Article 9 of the Uniform Commercial Code and all explanatory comments of the drafters of this act as the Revisor may deem appropriate." The Revision of Uniform Commercial Code Article 9 - Secured Transactions was drafted by the National Conference of Commissioners on Uniform State Laws and The American Law Institute on April 27, 2011. The Official Commentary for the 2010 revision are copyrighted 2010 by The American Law Institute and National Conference of Commissioners on Uniform State Laws. The affected portions of the Official Comment to this section have been set out at this section with the appropriate amendments. Effect of Amendments. - Session Laws 2012-70, s. 12, effective July 1, 2013, in subsection (c), rewrote the introductory paragraph, substituted "filed financing statement becomes seriously misleading" for "change" at the end of subdivision (c)(1), and, in subdivision (c)(2), substituted "filed financing statement becomes seriously misleading" for the first instance of "change" near the middle, and substituted "financing statement became seriously misleading" for "change" at the end. See note for Transition Provisions governing these amendments.