Effect of Change in Governing Law

  1. Law
  2. Georgia Code
  3. Commercial Code
  4. Secured Transactions
  5. Perfection and Priority
  6. Effect of Change in Governing Law

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  1. General rule; effect on perfection of change in governing law. A security interest perfected pursuant to the law of the jurisdiction designated in paragraph (1) of Code Section 11-9-301 or subsection (c) of Code Section 11-9-305 remains perfected until the earliest of:
    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.
  2. Security interest perfected or unperfected under law of new jurisdiction. If a security interest described in subsection (a) of this Code section becomes perfected under the law of the other jurisdiction before the earliest time or event described in that subsection, it remains perfected thereafter. If the security interest does not become perfected under the law of the other jurisdiction before the earliest time or event, it becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
  3. Possessory security interest in collateral moved to new jurisdiction. A possessory security interest in collateral, other than goods covered by a certificate of title and as-extracted collateral consisting of goods, remains continuously perfected if:
    1. The collateral is located in one jurisdiction and subject to a security interest perfected under the law of that jurisdiction;
    2. Thereafter the collateral is brought into another jurisdiction; and
    3. Upon entry into the other jurisdiction, the security interest is perfected under the law of the other jurisdiction.
  4. Goods covered by certificate of title from this state. Except as otherwise provided in subsection (e) of this Code section, a security interest in goods covered by a certificate of title which is perfected by any method under the law of another jurisdiction when the goods become covered by a certificate of title from this state remains perfected until the security interest would have become unperfected under the law of the other jurisdiction had the goods not become so covered.
  5. When subsection (d) of this Code section security interest becomes unperfected against purchasers. A security interest described in subsection (d) of this Code section becomes unperfected as against a purchaser of the goods for value and is deemed never to have been perfected as against a purchaser of the goods for value if the applicable requirements for perfection under subsection (b) of Code Section 11-9-311 or Code Section 11-9-313 are not satisfied before the earlier of:
    1. The time the security interest would have become unperfected under the law of the other jurisdiction had the goods not become covered by a certificate of title from this state; or
    2. The expiration of four months after the goods had become so covered.
  6. Change in jurisdiction of bank, issuer, nominated person, securities intermediary, or commodity intermediary. A security interest in deposit accounts, letter of credit rights, or investment property which is perfected under the law of the bank's jurisdiction, the issuer's jurisdiction, a nominated person's jurisdiction, the securities intermediary's jurisdiction, or the commodity intermediary's jurisdiction, as applicable, remains perfected until the earlier of:
    1. The time the security interest would have become unperfected under the law of that jurisdiction; or
    2. The expiration of four months after a change of the applicable jurisdiction to another jurisdiction.
  7. Subsection (f) of this Code section security interest perfected or unperfected under law of new jurisdiction. If a security interest described in subsection (f) of this Code section becomes perfected under the law of the other jurisdiction before the earlier of the time or the end of the period described in that subsection, it remains perfected thereafter. If the security interest does not become perfected under the law of the other jurisdiction before the earlier of that time or the end of that period, it becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
  8. Effect on filed financing statement of change in governing law. The following rules apply to collateral to which a security interest attaches within four months after the debtor changes its location to another jurisdiction:
    1. A financing statement filed before the change pursuant to the law of the jurisdiction designated in paragraph (1) of Code Section 11-9-301 or subsection (c) of Code Section 11-9-305 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; and
    2. If a security interest perfected by a financing statement that is effective under paragraph (1) of this subsection becomes perfected under the law of the other jurisdiction before the earlier of the time the financing statement would have become ineffective under the law of the jurisdiction designated in paragraph (1) of Code Section 11-9-301 or subsection (c) of Code Section 11-9-305 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.
  9. Effect of change in governing law on financing statement filed against original debtor. If a financing statement naming an original debtor is filed pursuant to the law of the jurisdiction designated in paragraph (1) of Code Section 11-9-301 or subsection (c) of Code Section 11-9-305 and the new debtor is located in another jurisdiction, the following rules apply:
    1. The financing statement is effective to perfect a security interest in collateral acquired by the new debtor before, and within four months after, the new debtor becomes bound under subsection (d) of Code Section 11-9-203 if the financing statement would have been effective to perfect a security interest in the collateral had the collateral been acquired by the original debtor; and
    2. A security interest perfected by the financing statement and which becomes perfected under the law of the other jurisdiction before the earlier of the time the financing statement would have become ineffective under the law of the jurisdiction designated in paragraph (1) of Code Section 11-9-301 or subsection (c) of Code Section 11-9-305 or the expiration of the four-month period remains perfected thereafter. A security interest that is perfected by the financing statement but which does not become perfected under the law of the other jurisdiction before the earlier time or event becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.

(Code 1981, §11-9-316, enacted by Ga. L. 2001, p. 362, § 1; Ga. L. 2013, p. 690, § 5/SB 185.)

The 2013 amendment, effective July 1, 2013, substituted "Effect of change" for "Continued perfection of security interest following change" in the catchline; and added subsections (h) and (i).

RESEARCH REFERENCES

U.L.A.

- Uniform Commercial Code (U.L.A.) § 9-316.

ALR.

- Choice of State Law Governing Perfection of Security Interest or Agricultural Lien Under Revised Article 9 of Uniform Commercial Code, 39 A.L.R.7th Art. 3.

PART 3 PRIORITY 11-9-317. Interests that take priority over or take free of security interest or agricultural lien.
  1. Conflicting security interests and rights of lien creditors. A security interest or agricultural lien is subordinate to the rights of:
    1. A person entitled to priority under Code Section 11-9-322; and
    2. Except as otherwise provided in subsection (e) of this Code section, a person that becomes a lien creditor before the earlier of the time:
      1. The security interest or agricultural lien is perfected; or
      2. A financing statement covering the collateral is filed.
  2. Buyers that receive delivery. Except as otherwise provided in subsection (e) of this Code section, a buyer, other than a secured party, of tangible chattel paper, tangible documents, goods, instruments, or a certificated security takes free of a security interest or agricultural lien if the buyer gives value and receives delivery of the collateral without knowledge of the security interest or agricultural lien and before it is perfected.
  3. Lessees that receive delivery. Except as otherwise provided in subsection (e) of this Code section, a lessee of goods takes free of a security interest or agricultural lien if the lessee gives value and receives delivery of the collateral without knowledge of the security interest or agricultural lien and before it is perfected.
  4. Licensees and buyers of certain collateral. A licensee of a general intangible or a buyer, other than a secured party, of collateral other than tangible chattel paper, tangible documents, goods, instruments, or a certificated security takes free of a security interest if the licensee or buyer gives value without knowledge of the security interest and before it is perfected.
  5. Purchase money security interest. Except as otherwise provided in Code Sections 11-9-320 and 11-9-321, if a person files a financing statement with respect to a purchase money security interest before or within 20 days after the debtor receives delivery of the collateral, the security interest takes priority over the rights of a buyer, lessee, or lien creditor which arise between the time the security interest attaches and the time of filing.

(Code 1981, §11-9-317, enacted by Ga. L. 2001, p. 362, § 1; Ga. L. 2010, p. 481, § 2-28/HB 451; Ga. L. 2013, p. 690, § 6/SB 185.)

The 2010 amendment, effective May 27, 2010, inserted "tangible" near the middle of subsection (b); and inserted "electronic documents," in the middle of subsection (d). See the Editor's notes for applicability.

The 2013 amendment, effective July 1, 2013, substituted "certificated security" for "security certificate" in subsection (b); and substituted "collateral other than tangible chattel paper, tangible documents, goods, instruments, or a" for "accounts, electronic chattel paper, electronic documents, general intangibles, or investment property other than a" in subsection (d).

Editor's notes.

- Ga. L. 2010, p. 481, § 3-1, not codified by the General Assembly, provides that: "This Act applies to a document of title that is issued or a bailment that arises on or after the effective date of this Act. This Act does not apply to a document of title that is issued or a bailment that arises before the effective date of this Act even if the document of title or bailment would be subject to this Act if the document of title had been issued or bailment had arisen on or after the effective date of this Act. This Act does not apply to a right of action that has accrued before the effective date of this Act." This Act became effective May 27, 2010.

Ga. L. 2010, p. 481, § 3-2, not codified by the General Assembly, provides that: "A document of title issued or a bailment that arises before the effective date of this Act and the rights, documents, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this Act as if such amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule." This Act became effective May 27, 2010.

JUDICIAL DECISIONS

Editor's notes.

- In light of the similarity of the provisions, decisions under former Article 9 are included in the annotations of this section.

Effect of perfection.

- Following perfection of security interest, other creditors enjoy no priority over such security interest. General Lithographing Co. v. Sight & Sound Projectors, Inc., 128 Ga. App. 304, 196 S.E.2d 479 (1973) (decided under former Code Section11-9-301).

Knowledge of security interest.

- Where security interest in an automobile was not properly recorded and was documented only in divorce decree's incorporated agreement, the secured party failed to carry the burden of proving that buyer had actual knowledge of the secured party's interest, even assuming the buyer had knowledge of the divorce. Freeman v. Bentley, 205 Ga. App. 409, 422 S.E.2d 435 (1992) (decided under former Code Section11-9-301).

As a cotton gin bought a farmer's cotton crop with actual knowledge, as defined by O.C.G.A. § 11-1-201(25), (27), of a bank's security interest therein, but still withheld some of the proceeds of the sale, under O.C.G.A. § 11-9-315(a)(1), the gin was liable to the bank for conversion and was not entitled to summary judgment. Bank of Dawson v. Worth Gin Co., 295 Ga. App. 256, 671 S.E.2d 279 (2008).

Effect of filing.

- Filing of financing statement can perfect only those interests acquired through security agreements. Tri-County Livestock Auction Co. v. Bank of Madison, 228 Ga. 325, 185 S.E.2d 393 (1971) (decided under former Code Section11-9-301).

Unperfected security interests.

- Surety, under master surety agreement in which bankrupt had signed as principal, could not assert priority over trustee with respect to equipment of bankrupt on basis of equitable lien upon retained contract funds following surety's completion of construction contract; without such equitable lien, surety, without perfected security interest, stood as general unsecured creditor which must defer to trustee. In re Merts Equip. Co., 438 F. Supp. 295 (M.D. Ga. 1977) (decided under former Code Section 11-9-301).

Unperfected security interest is subordinate to rights of lien creditors who acquire liens without knowledge of prior security interest and before its perfection; this operates in favor of creditor who has acquired lien on property involved by attachment, levy or the like. Mack Trucks, Inc. v. Ryder Truck Rental, Inc., 110 Ga. App. 68, 137 S.E.2d 718 (1964) (decided under former Code Section11-9-301).

Deemed unperfected security interests.

- Although a bank's security interests in equipment were properly perfected and remained so throughout a buyer's acquisition of the equipment from the debtor, those security interests were deemed never to have been perfected as against a purchaser for value when the bank failed to file timely continuation statements, under O.C.G.A. § 11-9-515(b), and the buyer took free of the security interests under O.C.G.A. § 11-9-317(b) because the buyer did not have actual knowledge of the security interests. Four County Bank v. Tidewater Equip. Co., 331 Ga. App. 753, 771 S.E.2d 437 (2015).

Judgment on note.

- Judgment on debt for unpaid balance on note does not in itself operate to perfect security interest in collateral listed on note, and payee's rights are subordinate to those of lien creditor who has no knowledge of security interest. Fas-Pac, Inc. v. Fillingame, 123 Ga. App. 203, 180 S.E.2d 243 (1971) (decided under former Code Section11-9-301).

Judgment liens are subordinate.

- The legislature intended to make judgment liens subordinate to purchase money security interests perfected within the grace period contained in former subsection (2) of this section. Crossroads Bank v. Corim, Inc., 262 Ga. 364, 418 S.E.2d 601 (1992) (decided under former Code Section11-9-301).

Purchase money security interests.

- A purchase money security interest has priority over a prior judgment lien only to the extent permitted by former subsection (2) of this section, which established a 15-day grace period for filing the purchase money security interest. Crossroads Bank v. Corim, Inc., 262 Ga. 364, 418 S.E.2d 601 (1992) (decided under former Code Section11-9-301).

Unperfected and untimely-perfected purchase money security interests are subordinate to a judgment lien. Crossroads Bank v. Corim, Inc., 262 Ga. 364, 418 S.E.2d 601 (1992) (decided under former Code Section11-9-301).

Applying Canadian law.

- to the facts of the case, a remote purchaser could not prevail over a creditor who had perfected its purchase money security interest in a truck within the time specified by Canadian law. Paccar Fin. Servs., Ltd. v. Johnson, 195 Ga. App. 412, 393 S.E.2d 685 (1990).

RESEARCH REFERENCES

U.L.A.

- Uniform Commercial Code (U.L.A.) § 9-317.


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