Brief Fact Summary. The Plaintiffs, Worthen Bank & Trust Co. and the National Bank of Commerce of El Dorado, Arkansas (NBC) (Plaintiffs) were both creditors of the Defendant, Hilyard Drilling Co. (Defendants). This dispute centers on the priority of the creditors’ perfected interests.
Synopsis of Rule of Law. Under the Uniform Commercial Code (UCC), a perfected security interest is effective for only five years unless a continuation statement is filed.
Issue. Did NBC’s perfected security interest lapse due to the failure to file a continuation statement?
Held. Yes. Under Article 9 of the UCC, a first filing of a financing statement is effective for only five years. However, the perfection can be maintained by filing a continuation statement before the expiration date. In the event that the perfection does lapse, all other perfected security interests advance in priority. Hence, since NBC failed to timely file a continuation statement, its perfected interest lapsed. When it finally did file after the deadline, it was essentially a re-filing of the security interest, which left NBC lower in priority than the Plaintiff, because the Plaintiff filed first.
Discussion. Under the UCC, a perfected security interest is effective for only five years unless a continuation statement is filed.
Contracts Keyed to Knapp, Crystal & Prince (Fifth Edition)