BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 2667 (Committee on Banking & Finance)
As Introduced
Hearing Date: June 12, 2012
Fiscal: No
Urgency: No
BCP
SUBJECT
Personal Property: Fraudulent Transfers
DESCRIPTION
Under existing law, a transfer of personal property not
accompanied by an actual transfer of the property is void as
against the transferor's creditors unless it satisfies one of
several exceptions. One of those exceptions is that the
transferor files a financing statement, signed by the
transferor, with the Secretary of State's office and publishes
notice of the intended transfer at least 10 days before the date
the transfer occurs.
This bill would eliminate the requirement that a financing
statement be signed by the transferor, and instead would require
that the transferor authorize the filing in an "authenticated
record," thus, allowing for paperless filing.
BACKGROUND
In an effort to modernize California's statute governing secured
transactions, SB 45 (Sher, Chapter 991, Statutes of 1999)
repealed the current Uniform Commercial Code Division 9<1> and
replaced it with provisions written by the National Commission
of Uniform State Laws. Those provisions enacted a new
comprehensive scheme for the regulation of security interests in
personal property and fixtures. Recognizing then-emerging
electronic commerce, the new Division 9 included references to
---------------------------
<1> It should be noted that, in California, Article 9 is
referred to as Division 9.
(more)
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authentication of a record as opposed to the signing of a
document.
This bill seeks to conform a provision of the Civil Code
relating to the transfer of personal property by replacing the
reference to the signing of a financing statement with the
authorizing of the statement in an authenticated record. That
statement is part of an exception to the general rule that every
transfer of personal property that is not accompanied by
delivery and change of possession is void against the
transferor's creditors.
CHANGES TO EXISTING LAW
Existing law provides that every transfer of personal property
made by a person having possession of the property that is not
accompanied by delivery and change of possession is void against
the transferor's creditors, as specified. (Civ. Code Sec. 3440.)
Existing law exempts certain transfers from the above provision,
including a transferor transfer evidenced by a financing
statement filed by the transferor or transferee with the office
of the Secretary of State that is signed by the transferor, as
specified, and notice of the intended transfer is published at
least 10 days before the date the transfer occurs. (Civ. Code
Sec. 3440.1.)
Existing law provides that a financing statement is sufficient
if it satisfies specified conditions, including that the debtor
authorizes the filing in an authenticated record or as provided.
(U. Com. Code Secs. 9501, 9509.)
Existing law defines "authenticate" as either of the following:
(1) to sign; or (2) to execute or otherwise adopt a symbol, or
encrypt or similarly process a record in whole or in part, with
the present intent of the authenticating person to identify the
person and adopt or accept a record. (U. Com. Code Sec. 9102.)
Existing law defines "record" as information that is inscribed
on a tangible medium or which is stored in an electronic or
other medium and is retrievable in perceivable form. (U. Com.
Code Sec. 9102.)
This bill would, with respect to the above exemption for
transfers of personal property where a financing statement is
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filed with the office of Secretary of State, require that
statement to be "authorized in an authenticated record" instead
of signed.
COMMENT
1. Stated need for the bill
According to the author:
This legislative proposal would amend subdivision (h) of
Section 3440.1 of the Civil Code to eliminate the
requirement that a financing statement be signed by the
transferor, and instead require that the transferor
authorize the filing in an "authenticated record."
This legislative proposal is needed to conform Section
3440.1(h) of the Civil Code to Division 9 of the ÝUniform
Commercial Code (UCC)], which eliminated, under the 2001
amendments, the requirement that a financing statement be
signed. Under Sections 9502(a) and 9509(a) of the
Commercial Code, records filed with the office of the
Secretary of State do not require signatures for their
effectiveness. Instead, a person is entitled to file a
financing statement if the debtor "authorizes the filing in
an authenticated record."
The sponsor, the Commercial Transactions Committee of the
Business Law Section of the State Bar, further states:
As explained in Official Comment 3 to Section 9502 of the
UCC, "Ýt]he elimination of the signature requirement
facilitates paperless filing." As a result of this change
to the UCC, the form of National UCC Financing Statement
(Form UCC1), available on the California Secretary of State
website . . . was revised so there is no longer a signature
line for the debtor.
In contrast, the financing statement form under former
Division 9 did have a signature line for the debtor. Since
the UCC financing statement form no longer provides a
signature line for the debtor/transferor, parties need to
manually add a signature block for the transferor to comply
with Civil Code Section 3440.1(h)(1).
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2. Authenticated records
Under existing law, transfers of personal property that are not
accompanied by delivery and change of possession are void
against the transferor's creditors, except under specified
circumstances. One such circumstance is when a financing
statement has been filed with the Secretary of State and there
has been a published notice of the intended transfer. This bill
would change the requirement for that financing statement to be
"signed" by instead providing that the statement must be
"authorized in an authenticated record." The sponsor, the
Commercial Transactions Committee of the Business Law Section of
the State Bar, notes that:
Ýt]he purpose of AB 2667 is to conform Civil Code Section
3440.1(h)(1) to the current form requirement for financing
statements under Division 9 of the ÝUCC] relating to
signatures. The 2001 amendments to Division 9 of the UCC
eliminated the requirement that a financing statement be
signed by the debtor so as to facilitate paperless (or
electronic) filing. Currently, Civil Code Section
3440.1(h)(1) still tracks former Division 9 of the UCC
because it requires a physical signature on the financing
statement.
Staff notes that currently under the UCC, "authenticate" is
defined as either to sign or "Ýt]o execute or otherwise adopt a
symbol, or encrypt or similarly process a record in whole or in
part, with the present intent of the authenticating person to
identify the person and adopt or accept a record." (U. Com. Code
Sec. 9102.) To similarly accommodate electronic signatures,
"record" is generally defined in the UCC as "information that is
inscribed on a tangible medium or which is stored in an
electronic or other medium and is retrievable in perceivable
form." (Id.) Regarding the substitution of the term sign with
authentication of a record in the UCC, this Committee's analysis
of SB 45 (Sher, Chapter 991, Statutes of 1999) noted that
Division 9 recognizes emerging electronic commerce and that:
Ýt]hroughout the text of new ÝDivision] 9, references are
made to the "authentication" of a "record" instead of
signing a document. In fact, a financing statement to be
filed need not even be signed by the debtor, if the debtor
authorizes the filing in an "authenticated record." . . .
The use of "authentication" to replace "signature" is
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intended to facilitate the handling of transactions
electronically and the creation of electronic agreements,
such as "electronic chattel paper."
As a result, the change proposed by this bill appears to be
consistent with both the prior revision of the UCC and the
current requirements for other financing statements filed with
the Secretary of State under the UCC. Consistent with the prior
revision to the UCC, this change would facilitate the use of
paperless filing.
Support : None Known
Opposition : None Known
HISTORY
Source : Commercial Transactions Committee of the Business Law
Section of the State Bar of California
Related Pending Legislation : None Known
Prior Legislation : SB 45 (Sher, Chapter 991, Statutes of 1999)
See Background.
Prior Vote :
Assembly Banking & Finance Committee (Ayes 12, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
Assembly Floor (Ayes 75, Noes 0)
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