BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 502|
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THIRD READING
Bill No: AB 502
Author: Wagner (R)
Amended: 6/24/13 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 6-0, 7/2/13
AYES: Walters, Anderson, Corbett, Jackson, Leno, Monning
NO VOTE RECORDED: Evans
SENATE APPROPRIATIONS COMMITTEE : 7-0, 8/30/13
AYES: De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg
ASSEMBLY FLOOR : 77-0, 5/29/13 - See last page for vote
SUBJECT : Commercial law: secured transactions
SOURCE : California Commission on Uniform State Laws
DIGEST : This bill on and after July 1, 2014, incorporates
amendments made to the Uniform Commercial Code (UCC) Article 9
into California's comparable statute, Commercial Code Division 9
(governing security interests). This bill applies to a
transaction or lien within its scope, even if entered into or
created prior to July 1, 2014, but specifies that its changes do
not affect any action, case or proceeding commenced prior to
that date. This bill provides previously perfected security
interests one year to meet the requirements for perfection under
the amended division, and includes an appropriation of $240,000
to the Secretary of State (SOS) for necessary regulatory updates
and computer application modifications.
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ANALYSIS : Existing law, the UCC-Secured Transactions
division, governs security interests in personal property.
This bill revises and recasts various Division 9 provisions and
makes conforming changes to existing cross references throughout
other code sections.
This bill revises various definitions for terms used throughout
Division 9, including for the terms "authenticate," "certificate
of title," "jurisdiction of organization" and "registered
organization."
This bill adds a new definition for the term "public organic
record."
This bill updates specified statutory UCC forms.
This bill includes various transitional provisions that, among
other things:
1.Provide the changes to this Division become operative July 1,
2014.
2.Provide that, except as otherwise specified in the transition
provisions, the changes to this Division apply to a
transaction or lien within its scope, even if the transaction
or lien was entered into or created before July 1, 2014.
3.Prohibit the changes to this Division from affecting an action
case, or proceeding commenced before July 1, 2014.
4.Specify rules relating to perfection of security interests
immediately prior to July 1, 2014.
5.Specify rules relating to the filing of financing statements
or initial financing statements before July 1, 2014 and the
effectiveness of such filed statements.
6.Clarify the priority given to competing security interests in
collateral in the event of a conflict with existing law prior
to July 1, 2014.
This bill, as part of the transition provisions described above,
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specifies that, except as otherwise provided, if, immediately
prior to July 1, 2014, a security interest is a perfected
security interest, but the applicable requirements for
perfection under this Division as of July 1, 2014 are not
satisfied as of that date, the security interest remains
perfected thereafter only if the applicable requirements for
perfection under this division as amended by this bill are
satisfied by July 1, 2015.
This bill includes an appropriation of $240,000 to the SOS for
necessary regulatory updates and computer application
modifications.
Existing law provides that a financing statement sufficiently
provides the name of the debtor only if it does so in accordance
with the following rules, among others:
1.If the debtor is a registered organization, only if the
financing statement provides the name of the debtor indicated
on the public record of the debtor's jurisdiction of
organization which shows the debtor to have been organized;
2.If the debtor is a decedent's estate, only if the financing
statement provides the name of the decedent and indicates that
the debtor is an estate;
3.If the debtor is a trust or a trustee acting with respect to
property held in trust, only if the financing statement
satisfies both of the following conditions:
A. It provides the name specified for the trust in its
organic documents or, if no name is specified, provides the
name of the settlor and additional information sufficient
to distinguish the debtor from other trusts having one or
more of the same settlors; and
B. It indicates, in the debtor's name or otherwise, that
the debtor is a trust or is a trustee acting with respect
to property held in trust; or
In other cases, according to the following rules:
A. If the debtor has a name, only if it provides the
individual or organizational name of the debtor; or
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B. If the debtor does not have a name, only if it provides
the names of the partners, members, associates, or other
persons comprising the debtor.
This bill revises and clarifies rules relating to the naming of
the debtor on financing statements to sufficiently provide the
name of a debtor that is a registered organization, or where the
collateral is being administered by the personal representative
of a decedent's estate, or is held in a trust, as specified.
Specifically, in relevant part, a financing statement is deemed
to sufficiently provide the name of the debtor only if it does
so in accordance with the following rules:
1.Except as otherwise specified under the provisions relating to
the naming of the debtor where collateral is held in a trust
that is not a registered organization, if the debtor is a
registered organization or the collateral is held in a trust
that is a registered organization (only if the financing
statement provides the name that is stated to be the
registered organization's name on the public organic record
most recently filed with or issued, or enacted by the
registered organization's jurisdiction of organization which
purports to state, amend, or restate the registered
organization's name).
2.If the collateral is held in a trust that is not a registered
organization, only if the financing statement satisfies the
following:
A. Provides, as the name of the debtor, either: (1) the
name specified in the organic record of the trust, if the
organic record of the trust specifies a name for the trust;
or (2) the name of the settlor or testator if the organic
record of the trust does not specify a name for the trust;
and
B. In a separate part of the financing statement, the
following information is provided, as applicable: (1) if
the name provided is the name on the organic record of
trust, the financing statement indicates that the
collateral is held in a trust; or (2) if the name provided
is the name of the settlor or testator, the financing
statement provides additional information sufficient to
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distinguish the trust from other trust having one or more
of the same settlors or the same testator and indicates
that the collateral is held in a trust, unless the
additional information so indicates.
1.If the collateral is being administered by the personal
representative of a decedent (only if the financing statement
provides, as the name of the debtor, the name of the decedent
and, in a separate part of the financing statement indicates
that the collateral is being administered by a personal
representative).
This bill adds that the name of the decedent indicated on the
order appointing the personal representative of the decedent
issued by the court having jurisdiction over the collateral is
sufficient as the "name of the decedent" under the rules
relating to the proper naming of a debtor where the collateral
is being administered by the personal representative of a
decedent's estate.
This bill provides a definition for the "name of the settlor or
testator" for the purpose of the provisions relating to the
naming of the debtor.
This bill makes clarifying changes to separate provisions
relating to the effect of seriously misleading financing
statements due to the name of the debtor being insufficient
under the above rules.
Existing law provides that a secured party has control of
electronic chattel paper if the record or records comprising the
chattel paper are created, stored, and assigned in such a manner
that specified conditions are satisfied, including among others:
1.A single authoritative copy of the record(s) exists which is
unique, identifiable, and except as specified, unalterable;
2.Copies or revisions that add or change an identified assignee
of the authoritative copy can be made only with the
participation of the secured party; and
3.Any revision of the authoritative copy is readily identifiable
as an authorized or unauthorized version.
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This bill adds that a secured party has control of electronic
chattel paper if a system employed for evidencing the transfer
of interests in the chattel paper reliably establishes the
secured party as the person to which the chattel paper was
assigned.
This bill makes other minor amendments to the provisions above.
Existing law specifies rules for the perfection of and priority
given to a security interest. Existing law provides that a
security interest perfected pursuant to the law of the
jurisdiction in which the debtor is located, as specified,
remains perfected until the earliest of any of the following:
1.The time perfection would have ceased under the law of that
jurisdiction;
2.The expiration of four months after a change of the debtor's
location to another jurisdiction; or
3.The expiration of one year after a transfer of collateral to a
person that thereby becomes a debtor and is located in another
jurisdiction.
Existing law provides that if a security interest described
above becomes perfected under the law of the other jurisdiction
before the earliest time or event prescribed, it remains
perfected thereafter. Otherwise, it becomes unperfected and is
deemed never to have been perfected as against a purchaser of
the collateral for value.
This bill provides specified rules for perfection that apply to
collateral to which a security interest attaches within four
months after the debtor changes its location to another
jurisdiction, as follows:
1.A financing statement filed before the change pursuant to the
law of the jurisdiction of the debtor's location, as
specified, is effective to perfect a security interest in the
collateral if the financing statement would have been
effective to perfect a security interest in the collateral had
the debtor not changed its location.
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2.If a security interest perfected by a financing statement that
is effective, as specified, becomes perfected under the law of
the other jurisdiction before the earlier of the time the
financing statement becomes ineffective under the law of the
jurisdiction of the debtor's location, as specified, or the
expiration of the four-month period, it remains perfected
thereafter. If the security interest does not become
perfected under the law of the other jurisdiction before the
earlier time or event, it becomes unperfected and is deemed
never to have been perfected as against a purchaser of the
collateral for value.
This bill provides specified rules relating to perfection where
there is a new debtor who is a successor by merger and the new
debtor is located in another jurisdiction, in order to allow for
temporary perfection in collateral owned by the successor before
the merger, as well as collateral acquired by the successor
within four months after the merger. This bill also provides
that a security interest created by a new debtor in collateral
in which the new debtor has or acquires rights and is perfected
pursuant to this bill, as specified, is subordinate to a
security interest in the same collateral which is perfected
other than by such a filed financing statement.
Existing law provides that except as otherwise provided, as
specified, certain terms in an agreement between an account
debtor and an assignor or in a promissory note are ineffective.
Existing law specifies that this provision does not apply to the
sale of a payment intangible or promissory note.
This bill instead provides that the provision above does not
apply to the sale of a payment intangible or promissory note,
other than a sale pursuant to a disposition or acceptance of
collateral under specified provisions relating to defaults.
Existing law provides that certain terms in a promissory note or
an agreement between an account debtor and a debtor that relates
to a health care insurance receivable or a general intangible,
as specified, are ineffective. Existing law specifies that this
provision applies to a security interest in a payment intangible
or a promissory note only if the security interest arises out of
a sale of the payment intangible or promissory note.
This bill instead provides that the provision above applies to
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the sale of a payment intangible or promissory note, other than
a sale pursuant to a disposition or acceptance of collateral
under specified provisions relating to defaults.
Existing law provides that a person may file in the filing
office a correction statement with respect to a record indexed
here under the person's name if the person believes that the
record is inaccurate or was wrongfully filed. Existing law
specifies requirements that must be met by a correction
statement.
This bill replaces references to "correction" statements with
"information" statements in various provisions of law, including
in the above.
Existing law lists circumstances in which filing does not occur
with respect a record that a filing office refuses. One such
circumstances is where in the case of an initial financing
statement or an amendment that provides a name of a debtor which
was not previously provided in the financing statement to which
the amendment relates, the record fails to do any of the
following:
1.Provide a mailing address for the debtor;
2.Indicate whether the debtor is an individual or an
organization; or
3.If the financing statement indicates that the debtor is an
organization, provide any of the following:
A. A type of organization for the debtor;
B. A jurisdiction of organization for the debtor; or
C. An organization identification number for the debtor or
indicate that the debtor has none.
This bill instead revises and limits the provision above to
where the record fails to (1) provide a mailing address for the
debtor; or (2) indicate whether the name provided as the name of
the debtor is the name of an individual or an organization.
This bill makes other technical, clarifying changes.
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Background
A "security interest" is a creditor's interest in property
(usually called "collateral") to satisfy a debt in the event
that the debtor defaults. In other words, a security interest
is the creditor's right to have the secured property sold to
satisfy the debt owed by the debtor. In order to enforce that
security interest in court and potentially against other
creditors, the security interest must have been properly created
and perfected ("perfection" is the process of validating any
legal document or interest by properly executing it and then
filing it with the correct public authority, essentially putting
the world on notice that an enforceable security interest exists
on that property), and have priority against other security
interests.
Article 9 of the UCC generally governs security interests in
personal property. This Article was vastly rewritten and
modernized by the Uniform Law Commission (ULC), (formerly the
National Conference of Commissioners on Uniform State Laws) in
the late 1990s. As a whole, the new Article 9 simplified and
clarified the rules for creation, perfection, priority and
enforcement of a security interest. Every state has adopted
Article 9 as revised, and California's revised Article 9 (called
"Division 9 of the Commercial Code") took effect on July 1,
2001. (AB 45 Sher, Chapter 991, Statutes of 1999).
Since that the enactment of AB 45 in 1999, the ULC has adopted
additional amendments based upon experiences with respect to
filing issues and other matters that arose in practice following
a decade of experience with the prior version of the Article
("the 2010 amendments"). The ULC's goal is to have every state
and territory adopt the 2010 amendments to Article 9 by July 31,
2013. As of June 14, 2013, the ULC reports that there have been
41 enactments and 10 introductions of legislation to do so,
including in California with this bill, AB 502.
Comments
According to the author's office, California enacted major
revisions to Division 9 of the California Commercial Code in
1999 AB 45 (Sher, Chapter 991, Statutes of 1999). Division 9
provides rules governing any transaction, other than a finance
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lease, that couples a debt with a creditor's interest in a
debtor's personal property. If the debtor defaults, the
creditor may repossess and sell the property to satisfy the
debt. The creditor's interest is a security interest. In
enacting the changes in 1999, California adopted 1998 amendments
to Article 9 of the UCC prepared by a drafting committee of the
ULC.
In the decade since the changes described were made to the UCC,
certain filing issues and other matters have arisen as states
gained experience with the revised version of Article 9 of the
UCC. Thus, the ULC adopted additional amendments to that
article in response. Assembly Bill 502 enacts those additional
amendments.
AB 502 brings California into compliance with other states that
have adopted the amendments to Article 9 of the UCC prepared by
the ULC. It is the goal of the ULC, to have all states adopt
these amendments with a uniform effective date of July 1, 2013.
AB 502, among other things, (1) defines a "public organic
record" and revises the definitions of "authenticate,"
"certificate of title," and "registered organization" for
purposes of Division 9, (2) specifies an additional requirement
for determining whether a secured party has control of
electronic chattel paper, (3) specifies rules that apply to
collateral to which a security interest attaches within four
months after the debtor changes its location to another
jurisdiction, and (4) provides for a secured party of record
with respect to a financing statement to file an information
statement with respect to a record if the secured party believes
that the person that filed the record was not entitled to do so.
The bill also provides greater guidance as to the name of a
debtor that is provided on a financing statement. This guidance
relates to debtors that are business entities and other
registered organizations.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee, one-time
appropriation of $240,000 (Special Fund) from the SOS Business
Fees Fund for expenditures associated with promulgating
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regulations, modifying automated filing systems and programming,
and updating filing forms.
SUPPORT : (Verified 8/30/13)
California Commission on Uniform State Laws (source)
California Bankers Association
California Business Roundtable
California Chamber of Commerce
California Mortgage Bankers Association
Fremont Bank
ASSEMBLY FLOOR : 77-0, 5/29/13
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,
Cooley, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,
Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández,
Jones, Jones-Sawyer, Levine, Logue, Lowenthal, Maienschein,
Mansoor, Medina, Melendez, Mitchell, Morrell, Mullin,
Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea,
V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner,
Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk,
Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Holden, Linder, Vacancy
AL:ej:n 8/31/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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