Fixtures and Fixture Filings under U.C.C. Article 9

Professor Margit Livingston analyzes a recent bankruptcy case in which the court apparently misunderstood the distinction between chattel perfection and fixture filings.

Professor Livingston writes: To perfect security interests under Article 9 of the Uniform Commercial Code, secured parties normally must file financing statements in the Secretary of State's office (or equivalent central filing office) in the state where the debtor is located. U.C.C. §§ 9-301 (1); 9-310 (a); 9-501 (a)(2) (Official Text 2009). One of the important exceptions to this general rule involves perfection of security interests in fixtures. Fixtures span real and personal property and can been described as real property with a chattel past and the possibility of a chattel future. Article 9 allows secured parties with security interests in fixtures to do an ordinary chattel filing or to make a fixture filing in the real estate records. See U.C.C. §§ 9-501 (a)(2), 9-502 (a) (chattel filings); U.C.C. §§ 9-501 (a)(1)(B), 9-502 (b) (fixture filings). Each type of filing will perfect the security interest but will give the secured party priority over different competing claimants. See U.C.C. §§ 9-317, 9-320, 9-322 (chattel filing priorities); U.C.C. §§ 9-334 (fixture filing priorities).

In a recent bankruptcy decision, the court apparently misunderstood the distinction between chattel perfection and fixture filings and held that the secured party holding a security interest in a fixture was unperfected as against the trustee in bankruptcy. In re Troutt, No. 09-40555, 2009 Bankr. LEXIS 2673 (Bankr. S.D. Ill. Sept. 4, 2009). In Troutt, the debtors had entered into a home improvement contract and had signed a security agreement with Energy Doctor of Illinois, LLC. Under the contract, Energy Doctor was to install an energy guard in the debtors' house and retained a security interest in the guard until full payment by the debtors. 2009 Bankr. LEXIS 2673, at *1. Energy Doctor assigned the contract to American General Financial Services, Inc.

Later the debtors filed a Chapter 13 bankruptcy petition and treated American's claim as unsecured. American objected to confirmation of the debtors' plan and filed a secured claim. In re Troutt, 2009 Bankr. LEXIS 2673, at *1. The debtors asserted that the secured party had not filed either a conventional U.C.C. financing statement or a fixture filing in the real estate records. Without any filing, the secured party, the debtors argued, held an unperfected security interested subject to avoidance under the "strong arm" clause of the federal Bankruptcy Code. 11 U.S.C. § 544 (a) (2009). American countered by arguing that it held a purchase money security interest in consumer goods, which was automatically perfected without filing. U.C.C. § 9-309 (1). A properly perfected security interest cannot be avoided in bankruptcy under the strong arm clause.

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Comments

Anonymous
Anonymous
  • 11-13-2012

i am so atr