Changes to Pennsylvania UCC Code Part III
This is the final chapter of our three-part series highlighting the major changes to Article 9 of Pennsylvania’s Uniform Commercial Code (the “Pennsylvania UCC”), which became effective July 1, 2013.
Governor Tom Corbett signed into law Senate Bill 381, which amends several sections of Article 9 of the Pennsylvania UCC [13 Pa.C.S.A. §§9101-9710]. Senate Bill 381 was introduced to the Floor primarily to enact the 2010 amendments to the Uniform Commercial Code promulgated by the American Law Institute and the Uniform Law Commission. The 2010 amendments to the Pennsylvania UCC became effective on July 1, 2013. The following provides an overview of some of the most notable of the 2010 amendments, including the rules pertaining to the continued perfection of a security interest after a change in governing law.
Continued Perfection of Security
Prior to the 2010 amendments, Article 9 of the Pennsylvania UCC provided for the continued perfection of a security interest for a period of four (4) months following a change in the jurisdiction in which the debtor is located (unless the perfection would otherwise cease earlier under the law of the debtor’s original jurisdiction), [See 13 Pa. C.S.A. §9316(a)(2)]. However, the continued perfection extended only to collateral owned by the debtor at the time of the change in jurisdiction, [See Comment 1 to §9316].
The 2010 amendments add a new subsection §9316(h), which extends the four (4) month grace period of continued perfection offered under §9316(a) to collateral acquired by the debtor after the debtor’s change in jurisdiction, so long as the secured party has taken steps that would have perfected the security interest in the debtor’s original state. The perfection only continues, however, until the end of the four (4) month grace period. After that period, the security interest becomes unperfected unless a new financing statement is filed in the new jurisdiction of the debtor. This change is particularly useful for secured creditors with security interests in after-acquired collateral. The grace period mitigates the risk of being unperfected in after-acquired collateral following the change in jurisdiction prior to the secured creditor filing a new financing statement in the new jurisdiction.
The 2010 amendments also add a new subsection §9316(i), which addresses security interests that attach within four (4) months after a new debtor in another jurisdiction becomes bound by an existing security agreement of the original debtor (e.g. by merger and/or acquisition). Prior to the 2010 amendments, Article 9 provided for the continued perfection of a security interest in certain collateral for one (1) year following a transfer of that collateral from the original debtor to a new debtor who is located in another jurisdiction. The 2010 amendments also add a new subsection §9316(i), which addresses security interests that attach within four (4) months after a new debtor in another jurisdiction becomes bound by an existing security agreement of the original (unless the perfection would otherwise cease earlier under the law of the debtor’s original jurisdiction), [See 13 Pa. C.S.A. §9316(a)(3)]. However, this continued perfection only extended to collateral existing at the time the new debtor became bound by the existing security agreement – not in after-acquired property, [See Comment 1 to §9316]. Accordingly, §9316(i) was added to the Pennsylvania UCC and provides a four (4) month grace period for filing a new financing statement. During that time, the secured party will maintain a perfected security interest in collateral acquired by the new debtor after the new debtor became subject to the security agreement as well as in after-acquired collateral. Notwithstanding the four (4) month grace period of perfection in after-acquired collateral offered by §9316(i), §9316(a)(3) remains unaffected so that the security interest attaching to collateral existing at the time the new debtor became bound by the existing security agreement still enjoys continued perfection for one (1) year following a transfer of that collateral from the original debtor to a new debtor who is located in another jurisdiction.
However, lenders should note that under amended §9326(a) of Article 9, the security interest in the collateral acquired after the change in jurisdiction of the original debtor by virtue of §9316(i) remains subordinate to other perfected security interests granted by the new debtor in the new jurisdiction prior to the existing secured party’s perfection in that jurisdiction. Accordingly, lenders should be advised to file financing statements in the new jurisdiction as soon as possible to maintain the priority of their security interest with respect to the after-acquired collateral.
Changes to Debtor Name Provisions
Section 9503 of Article 9 of the Pennsylvania UCC determines when a financing statement properly provides the correct name of a debtor. Under the 2010 amendments, in accordance with the change in the definition of “registered organization” at §9102 (described in Part I of this series), §9503(a)(1) states that for debtors which are registered organizations, a financing statement will only be sufficient if it sets forth the registered organization’s name on the public organic record most recently filed with the registered organization’s jurisdiction.
In situations involving deceased debtors prior to the 2010 amendments, §9503(a)(2) required that, in order to sufficiently provide the debtor’s name, a financing statement needed to provide the name of the deceased debtor, qualified by some indication that the debtor is an estate. The 2010 amendments to §9503(a)(2), in conjunction with the introduction of §9503(f), now provide that a financing statement will be sufficient only if it: (i) provides the name of the decedent as indicated on the order appointing the personal representative of the decedent by a court with jurisdiction over the collateral in which the secured creditor has a security interest; and (ii) indicates in a separate part of the financing statement that the collateral is being administered by a personal representative.
As outlined in Part I of this series (Proper Organizational Name to Be Used for Corporations, LLC’s and other Entities on UCC Financing Statements), statutory trusts are now included in the definition of “registered organizations” under 13 Pa. C.S.A. §9102 and will be treated as such when determining the name which should appear on the financing statement. Under the amended §9503(a)(3), for common law trusts, including testamentary trusts, the name appearing on the financing statement must be the name of the trust as stated in the organic record of the trust (or the name of the trust settlor or testator when the organic record of the trust has no name). The name of the trustee will no longer be accepted as the correct name to be listed on a financing statement for a common law trust. The amended §9503(a)(3) also requires that for trusts that contain the name of the trust in the organic record of the trust, the financing statement must indicate that the collateral is held in trust. On the other hand, for trusts that have no name, the financing statement must provide additional information to distinguish the trust from other trusts having one or more of the same settlors or the same testator, and must indicate that the collateral is held in a trust.
In the case of individual debtors, the American Law Institute and the Uniform Law Commission provided two alternative provisions in the Uniform Commercial Code. Under the Uniform Commercial Code, state legislatures may choose the alternative that best meets the needs of their respective constituents:
- Alternative A – the “Only if” option: If the debtor has a driver’s license that has not expired, which license is issued by the state in which the financing statement is being filed, the financing statement must use the name on the driver’s license. If (and only if) the debtor does not have an unexpired driver’s license, which license is issued by the state in which the financing statement is being filed, the financing statement may use the debtor’s first name and surname.
- Alternative B – the “Safe Harbor” option: The financing statement sufficiently names the debtor by providing (a) the debtor’s individual name as determined by state law, (b) the debtor’s surname and first name, or (c) the name on an unexpired driver license, which license is issued by the state in which the financing statement is being filed.
Pennsylvania adopted the “Only if” option (Alternative A) described above, at the amended §9503(a)(4) of Article 9. Lenders should note, however, that the 2010 amendments to the Pennsylvania UCC expand upon the required inquiry regarding a driver’s license. In the event that a debtor does not have an unexpired driver’s license, §9503(a)(4) also requires an inquiry from the secured party into whether the individual debtor has an “identification card” issued by the PA Department of Transportation. If so, the name on that identification card must be listed as the individual debtor name on the financing statement. In other words, if the individual debtor does not have an unexpired driver’s license, the secured party must now also inquire into whether the individual debtor has an identification card before the secured party can be confident it can perfect its security interest by simply listing the first and last name of the individual debtor on the financing statement.
Secured lenders should also be aware of the new requirement pertaining to organizational debtors, arising as a result of Pennsylvania adopting Alternative A, under the newly added §9503(a)(6) (formerly §9503(a)(4) under the pre-2010 Article 9). In cases of an organizational debtor without an organizational name (such as an unregistered/unnamed partnership), Pennsylvania has effectively required that the individual names of the individuals comprising the unnamed debtor organization be listed on the financing statement, in a manner that each name provided would be sufficient if the person named were the debtor. Thus, drivers’ licenses or identification cards, as applicable, of the individuals comprising an unnamed organization are required to secure the collateral of the unnamed debtor organization.
About the Authors
Attorney Thomas Reilly, Chair of the firm’s Business Services Group, focuses his practice in the areas of business, banking, and commercial law. His strong background in accounting, business management, and communications affords him the opportunity to work with a range of business clients throughout the United States, from small entrepreneurial companies to large, multinational corporations.
Attorney Nicole O’Hara supports the Business Services Group in the areas of business and employment law. She has specific experience with intellectual property law and works with businesses large and small, advancing and managing patent portfolios, drafting patent applications, and resolving trademark, copyright, trade secret, and patent-related issues.