Request By:
Mr. J. U. Grow, Clerk
Simpson County Court
Franklin, Kentucky 42134
Opinion
Opinion By: Steven L. Beshear, Attorney General; Elizabeth E. Blackford, Assistant Attorney General
You have written on behalf of the Simpson County Clerk's Office to ask whether continuation statements which are tendered well in advance of the expiration date of the original statement should be accepted for filing. You have received continuation statements which have been tendered for filing two or more years in advance of the expiration date of the original statement. You have also asked whether the expiration date is that named in the continuation statement when the continuation statement was accepted and filed two years in advance of the expiration date set by the original statement, or whether it is the expiration date set by the original statement.
The brief answer to your question is that the office should refuse to accept or file continuation statements tendered for filing before the six month period immediately prior to the maturity date named in the original statement, for such continuation statements are premature and, under KRS 355.9-403(3) have no legal effect. In those cases where premature continuation statements have already been filed, the secured party should be given written notice that the statement has no legal effect and that the security interest which was perfected by way of the original statement will lapse upon the expiration date established by the original statement if a timely continuation statement is not filed.
The pertinent portion of KRS 355.9-403 provides:
"(1) Presentation for filing of a financing statement and tender of the filing fee or acceptance of the statement by the filing officer constitute filing under this article.
"(2) A filed financing statement which states a maturity date of the obligation secured of five (5) years or less is effective until such maturity date and thereafter for a period of sixty (60) days. Any other filed financing statement is effective for a period of five (5) years from the date of filing. The effectiveness of a filed financing statement lapses on the expiration of such sixty (60) day period after a stated maturity date or on the expiration of such five (5) year period, as the case may be, unless a continuation statement is filed prior to the lapse. Upon such lapse the security interest becomes unperfected. . . .
"(3) A continuation statement may be filed by the secured party (a) within six (6) months before and sixty (60) days after a stated maturity date of five (5) years or less, and (b) otherwise within six (6) months prior to the expiration of the five (5) year period specified in subsection (2). . . . Upon timely filing of the continuation statement, the effectiveness of the original statement is continued for five (5) years after the last date to which the filing was effective. . . Succeeding continuation statements may be filed in the same manner to continue the effectiveness of the original statement. Unless a statute on disposition of public records provides otherwise, the filing officer may remove a lapsed statement from the files and destroy it. (Emphasis added.)
Those authorities which have considered the language of subsection three of the statute have consistently opined that the time limitations set out therein are mandatory, and that a continuation statement which is filed more than six months before the maturity date of the original statement is premature and without legal effect. Opinion of the Attorney General of Ohio (74-025) 14 UCC Rep. 860;Opinion of the Attorney General of Iowa (73-5-6) 12 UCC Rep. 1251;Opinion of the Attorney General of North Carolina, 22 UCC Rep. 266; In the Matter of Callahan Motors, Inc., 396 F.Supp. 785 (DCNJ, 1975). 1 Therefore, even though the premature continuation statement has been filed, it will have no impact on the expiration or lapse date established by the original statement. Consequently, the statement lapses on the date established by the original statement, just as it would if no continuation statement had been filed.
This office agrees with such an interpretation, for the language of KRS 355.9-403(3) which states that continuation statements, if filed, are to be filed within the six months prior to the maturity date of original statement, and, where applicable, during the sixty-day grace period, and the language which states that the original statement will continue to be effective upon timely filing of the continuation statement is specific, clear and unambiguous. Therefore, under the prevalent rules of statutory construction, that language is controlling. Thomas v. Commonwealth, Ky.App. 563 S.W.2d 491 (1978). The continuation statement must be filed within the stated time period.
The question remains as to whether the clerk may or should refuse to accept or file continuations tendered for filing in advance of the six-month period set out in KRS 355.9-403(3). The clerk may and should refuse to accept and file premature continuation statements. Because premature continuation statements have no legal effect, accepting or filing them is a vain act. Therefore, the clerk may refuse to accept and file them. Commonwealth ex rel. Curlin v. Moyers, Ky., 280 S.W.2d 513 (1955). Furthermore, the clerk should refuse to accept and file them so the secured parties will not be mislead into believing they have achieved a continuation of their security interests through acceptance and filing of the premature continuation statements. Cf. In the Matter of Callahan Motors, Inc., 538 F.2d 76 (3 cir., 1976).
The final question then becomes, what should be done in those cases where the clerk has accepted and filed a premature continuation statement? Because the premature continuation statement has no legal effect, the security interest lapses upon the maturity date stated in the original statement, or, where applicable, sixty days after the maturity date stated in the original statement. However, where the clerk has accepted a premature continuation statement, the original statement should not be removed from the records, once lapsed, unless the clerk has first notified the secured party that the lapse occurs upon the date established by the original statement and that the filing of a timely continuation statement will be required in order to continue the effectiveness of the original continuation statement. Cf. In the Matter of Callahan Motors, 538 F.2d 76 (3 cir., 1976).
Footnotes
Footnotes
1 The decision of the District Court in this case was later overturned by the Third Circuit Court of Appeals on other grounds. In the Matter of Callahan Motors, Inc., 538 F.2d 76 (3 cir., 1976). Though the Court of Appeals did not specifically address or decide the question of whether the six-month time limitation established by UCC 9-403(3) must be complied with in order to have a legally effective continuation, it did indicate that under this section compliance with that time limitation is mandatory. Id., 77-78.