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