SENATE BILL REPORT

HB 1502

BYRepresentatives Meyers, Schmidt and P. King 

Revising provisions on secured transactions under the Uniform Commercial Code.

House Committe on Judiciary

Senate Committee on Law & Justice

Senate Hearing Date(s):February 23, 1988

Majority Report:  Do pass.

      Signed by Senators Pullen, Chairman; Hayner, Madsen, Nelson, Newhouse, Niemi, Talmadge.

Senate Staff:Jeanne Cushman Scott (786-7461)

                  February 24, 1988

AS REPORTED BY COMMITTEE ON LAW & JUSTICE, FEBRUARY 23, 1988

BACKGROUND:

The 1972 version of Article IX of the Uniform Commercial Code, adopted by the state of Washington in 1982, is the law which governs secured transactions in the state of Washington.  Generally, Article IX applies to any transaction which is intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper or accounts.

Under the current code, a security agreement covering crops must contain a description of the collateral (crops), and a description of the land concerned.  If a security agreement does not contain these descriptions, then it does not attach, that is, it cannot be enforced against the debtor or against any third party.

The UCC provides a formula for determining who has priority when two parties have conflicting security interests in crops. The formula gives a perfected security interest priority over an already existing security interest if new value is given, within three months of when the crops become growing crops, to enable the debtor to produce crops, and to the extent that the earlier interest secures obligations due more than six months before the crops become growing crops.

To amend a filed financing statement under the current code, one must file a writing signed by both the debtor and the secured party, regardless of the nature of the amendment.  In addition, where a debtor's name is changed so as to make a filed financing statement seriously misleading, the filing is not effective more than four months after the change unless a new financing statement is filed.  The signature of the debtor is required on any new financing statement.

SUMMARY:

A security agreement which covers crops need not contain a description of the land concerned. A description of the crops is sufficient.

Priority conflicts between security interests in crops are governed by Washington law on crop liens.  First, this gives the highest priority to liens in favor of any person who furnishes any work or labor upon the land. Second, priority is given to a later filed lien or security interest if the obligations secured by the earlier filed security interest or lien were not incurred to produce such crops.  Third, a landlord's lien has priority over an earlier filed security interest.  Aside from these three situations, the rule of priority is that the first party to file has priority.

A financing statement may be amended by filing a writing signed only by the secured party.  If collateral is added, the signature of the debtor is also required on the amendment.

Where there is a name change of the debtor which makes the financing statement seriously misleading, the secured party has the option of filing an amendment instead of a new financing statement.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Senate Committee - Testified: Robert G. Wallace, Washington State Bar - UCC Committee