Four Cty. Bank v. Tidewater Equip. Co. - 331 Ga. App. 753, 771 S.E.2d 437 (2015)

Rule:

The deemed retroactive unperfection in O.C.G.A. § 11-9-515 applies only with respect to purchasers for value; unlike former Section 9-403(2), it does not apply with respect to lien creditors. The new (2001) version of the statute also imposes a new burden on the secured party: to be sure that a financing statement does not lapse during the debtor's bankruptcy.

Facts:

In June 2003 and November 2005 respectively, appellant The Four County Bank, provided financing for the purchase of two different pieces of foresting equipment by Shepherd Brothers Timber Company, LLC. The Bank perfected its security interests in both pieces of equipment by filing financing statements in Wilkinson County Superior Court. While the Bank's original financing statements were still effective, Shepherd sold both pieces of equipment to appellee Tidewater Equipment Company, which later resold them. In October 2008 and March 2011, more than five years after the filing of each of the original financing statements, the Bank attempted to file continuation statements as to the equipment. After Shepherd declared bankruptcy, the Bank sued Tidewater to recover the equipment or its value. On appeal from the trial court's grant of summary judgment to Tidewater, the Bank argued that Tidewater was liable for the value of the equipment because Tidewater should have known of the Bank's perfected security interest at the time Tidewater resold the equipment.

Issue:

1. Were the Bank’s security interests perfected at the time Tidewater took possession of the equipment? 
2. Was Tidewater a purchaser for value such that it took possession of the equipment free of the Bank's security interests once they lapsed? 

Answer:

1) Yes. 2) Yes.

Conclusion:

The court disagreed with the Bank’s contention, and affirmed the trial court’s judgment. According to the court, although the bank perfected its security interests in two pieces of equipment by filing financing statements which were effective at the time Tidewater acquired the equipment from the debtor, the bank failed to file continuation statements in the six months before the expiration of the five-year period from the date of the financing statements as required by O.C.G.A. § 11-9-515(c). Under § 11-9-515(b), once the bank's security interests lapsed for failure to file a timely continuation statement, those interests became unperfected and were deemed never to have been perfected as against a purchaser of the collateral for value. In this case, Tidewater was a "purchaser for value" such that it took the equipment free of the bank's security interests once they lapsed, O.C.G.A. § 11-9-317(b), because there was no evidence that it had actual notice of the interests, O.C.G.A. § 11-1-201(25).