3JM Company Inc.

Published Articles by David Balovich

Published in: Creditworthy News
Date: 9/3/98

This is the fourth in a series of articles on Article 9 of the UCC

In a previous column I stated that the security agreement could be filed up through the fifth year. Some of you wrote and felt that this was misleading and did not reflect the importance of filing the document timely.

I want to state that the filing of the document is very important and should be done as quickly as possible. I was simply reporting that Article 9 allowed for the filing to take place at a later time and could be done as late as the fifth year from the date of the agreement.

Having said that allow me to share with you an experience I had several years ago when I was Director of Credit for a major corporation.

We had a large customer, a publicly held Fortune 500 company. Regardless, it was our firms position, also a Fortune 500 company, that we be secured for the amount of credit we were extending. Our customer was reluctant to sign the security agreement due to the large number of vendors they had. It was their position that if they signed a security agreement for one vendor then they would have no reason not to do so for others. Also, the lending agreement they had with their primary bank did not provide for security agreements with trade creditors.

We ended up coming to an agreement with the customer that if they signed the security agreement we would not file it unless they gave us reason to do so. i.e., default on payment of invoices, default on their banking agreement or ceasing to do business with us and not satisfying outstanding invoices.

The outcome was that in the third year of our doing business their bank did not renew their operating loan. We filed our financing statement per our agreement and were subsequently sued. The case was dismissed as frivolous as the court proclaimed that we had every right to file since we were within the time allowed by statute.

It is important to file the security agreement as quickly as possible but there are times when you can have the protection of a security interest and not record it timely if conditions dictate that it is not advantageous to do so. It is possible to obtain a security interest and delay the filing.

In our next column we will discuss the filing procedure.

I wish you well.

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