BILL ANALYSIS                                                                                                                                                                                                    Ó



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          ASSEMBLY THIRD READING
          AB 502 (Wagner)
          As Amended  May 24, 2013
          Majority vote 

           JUDICIARY           6-4         APPROPRIATIONS      17-0        
           
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          |Ayes:|Wieckowski, Alejo, Chau,  |Ayes:|Gatto, Harkey, Bigelow,   |
          |     |Dickinson, Garcia, Stone  |     |Bocanegra, Bradford, Ian  |
          |     |                          |     |Calderon, Campos,         |
          |     |                          |     |Donnelly, Eggman, Gomez,  |
          |     |                          |     |Hall, Ammiano, Linder,    |
          |     |                          |     |Pan, Quirk, Wagner, Weber |
           ----------------------------------------------------------------- 
           -------------------------------- 
          |Nays:|Wagner, Gorell,           |
          |     |Maienschein, Muratsuchi   |
          |     |                          |
           -------------------------------- 
           SUMMARY  :  Adopts various amendments to Division 9 of the Uniform  
          Commercial Code, governing secured transactions in personal  
          property.  Specifically,  this bill,  among other things:   

          1)Revises the requirements for a financing statement to  
            sufficiently provide the name of a debtor that is a registered  
            organization, or where the collateral is held in a trust or is  
            being administered by the personal representative of a  
            decedent's estate.

          2)Specifies rules that apply to collateral to which a security  
            interest attaches within four months after the debtor changes  
            its location to another jurisdiction, or where there is a new  
            debtor that is a successor by merger.  Specifically, provides  
            the filer with perfection for four months in collateral  
            acquired post-move, and provides for temporary perfection in  
            collateral owned by the successor before the merger or  
            collateral acquired by the successor within four months after  
            the merger.

          3)Replaces references to "correction statement" with the term  
            "information statement," and authorizes the secured party of  
            record to also file an information statement if the secured  
            party believes that an amendment to its financing statement  








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            was not authorized.

          4)Specifies an additional requirement for determining whether a  
            secured party has control of electronic chattel paper.

          5)Implements transitional rules for determining the perfection  
            of a security interest, and makes many other technical and  
            corresponding changes.

          6)States that these provisions become operative on July 1, 2014.

          FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee, this bill contains a one-time special fund  
          appropriation of $240,000 to the Secretary of State to  
          promulgate regulations, update forms, and modify an automated  
          filing system. (Business Fees Fund)
           
          COMMENTS  :  On behalf of the sponsor, the California Commission  
          on Uniform State Laws, the author introduced this bill to adopt  
          revisions to Article 9 of the Uniform Commercial Code (UCC) set  
          forth in 2010 by the American Law Institute and the National  
          Conference of Commissioners on Uniform State Laws (hereafter,  
          "Uniform Law Commission" or ULC).  Collectively, these revisions  
          are referred to as the "2010 Amendments."  

          The last major revision of Article 9 was in 1999 which was  
          adopted in all fifty states.  It is the stated goal of the ULC  
          to enact the 2010 Amendments in all 50 states with an effective  
          date of July 1, 2013.  This revision is current law in over 30  
          states, and has been introduced this year in the legislatures of  
          another sixteen states.  This bill would enact many of the 2010  
          Amendments in this state, which uses the nomenclature "Division  
          9" rather than "Article 9" when referring to the California  
          Commercial Code.
           
           According to the Uniform Law Commission, Article 9 of the UCC  
          governs secured transactions in personal property-that is, the  
          granting of credit secured by personal property.  Hundreds of  
          millions of dollars of commercial and consumer credit are  
          granted every year in secured transactions under UCC Article 9.   
          Article 9 rules apply, for example, when a manufacturer finances  
          the acquisition of machinery, a retailer finances inventory, or  
          a consumer finances home furnishings.  (Uniform Law Commission,  
          "UCC Article 9 Amendments Enacted in 26 States," May 22, 2012.)








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          Article 9 provides rules that govern any transaction, other than  
          a finance lease, that involves the granting of credit coupled  
          with a creditor's interest in a debtor's personal property.  If  
          the debtor defaults, the creditor may possess and sell the  
          property to satisfy the debt.  The creditor's interest is called  
          a security interest, and perfection of the creditor's security  
          interest establishes the creditor's priority over other  
          creditors.  Article 9 specifies who has the first rights in the  
          collateral when two or more competing creditors have legally  
          enforceable interests in the collateral.  (Id.)


          Among other things, this bill seeks to enact several changes  
          with respect to perfection issues arising on after-acquired  
          property when a debtor moves to a new jurisdiction.  Current law  
          provides that perfection by filing continues for four months  
          after the jurisdiction in which the debtor is located changes.   
          However, this temporary period of perfection applies only with  
          respect to collateral owned by the debtor at the time of the  
          change.  Even if the security interest attaches to  
          after-acquired collateral, there is currently no perfection with  
          respect to such new collateral unless and until the secured  
          party perfects pursuant to the law of the new jurisdiction.   
          This bill seeks to change this by giving the filer perfection  
          for four months in collateral acquired post-move.  A similar  
          change would be made with respect to a new debtor that is a  
          successor by merger.  This bill would provide for temporary  
          perfection in collateral owned by the successor before the  
          merger or collateral acquired by the successor within four  
          months after the merger. 

          Under existing law, the debtor is permitted to file a correction  
          statement, which is a claim that a financing statement filed  
          against the debtor was in fact unauthorized.  While this filing  
          has no legal effect on the underlying claim, it does put in the  
          public record the debtor's claim that the financing statement  
          was wrongfully filed.  This bill would rename the "correction  
          statement" as an "information statement" and more importantly,  
          authorize the secured party of record to also file an  
          information statement if the secured party believes that an  
          amendment to its financing statement was not authorized.  The  
          change addresses concerns of secured parties that an amendment  








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          to a different financing statement may be inadvertently filed on  
          the secured party's financing statement because the amendment  
          contains an error when referring to the file number of the  
          financing statement to be amended.  
            
          The bill makes a number of additional technical changes to the  
          Commercial Code, including the following:  1)  Deleting some  
          extraneous information currently provided on financing  
          statements; 2) establishing a safe harbor for the transfer of  
          chattel paper in conformance with the Uniform Electronic  
          Transactions Act , as specified; 3) clarifying requirements for  
          certificates of title for title goods where the certificates of  
          title are, in whole or in part, in electronic form; and 4)  
          clarifying notice requirements applicable to electronic  
          dispositions of collateral when a security interest is enforced  
          by sale or other disposition of the collateral.
           
           As recently amended, the bill includes an appropriation of  
          $240,000 to the Secretary of State for necessary regulatory  
          updates and computer application modifications, and establishes  
          a delayed operative date of July 1, 2014.   In addition, the  
          bill provides various updated statutory UCC-related forms needed  
          to reflect policy and procedural changes made by this bill.  


          Analysis Prepared by  :   Anthony Lew / JUD. / (916) 319-2334 


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