Multiple Secured Parties: Amendments

Complications with Multiple Secured Parties: Part 2 – Amendments

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Most people do not appreciate the potential complications involved when a search reveals multiple secured parties on a single financing statement.

In the first part of this series, we discussed the potential for confusion to arise when a new secured party is added but the interest, if any, of the “old” secured party is not unambiguously ended. Consequently, an “old” secured party can remain a secured party of record; and remember: a careful searcher should seek to resolve the interest of every secured party of record. In this part, let’s discuss amendments other than terminations.

An amendment authorized by one secured party does not necessarily affect the rights of another secured party on the same financing statement. See § 9510(b). If SP-1 files an amendment without the concurrence of SP2, the amendment affects only the rights of SP-1. Presumably, the “other” secured party, SP-2, would be quick to ratify any amendment that adds collateral, adds a debtor, or otherwise increases its rights, but SP-2 would be just as quick to deny any amendment that purports to delete collateral, delete a debtor, or otherwise decreases its rights.

For example, consider that there are two secured parties listed for a financing statement, and one of them files an amendment. The amendment only affects the rights of any secured party that authorized the amendment. The secured party that filed the amendment almost certainly authorized it – that seems apparent from the fact that the secured party did file an amendment – but the other secured party’s authorization is not apparent from the filed amendment itself.
In this context, there are three alternatives to bind the “other” secured party. First, one could obtain evidence that the other secured party, SP-1, no longer actually has an interest, so SP-2’s amendment is sufficient. Second, one could obtain evidence that SP-1 is bound by the actions of SP-2, thereby making SP-2’s amendment binding on SP-1. Third, one could obtain authorization to file an amendment on SP-1’s behalf.

Secured Money

Again, any time there are multiple secured parties indicated with respect to a financing statement, one should satisfy oneself either (a) that all the secured parties have authorized the amendment, or (b) that all the “live” secured parties have authorized the amendment and there is adequate evidence that the other secured parties have either released, waived, or otherwise lost their rights with respect to the financing statement OR are bound by whatever amendments have been filed.

Notice that there has been no mention of continuation? Well, like other amendments, a continuation only affects the rights of a secured party that authorizes the filing. However, if there are multiple secured parties and one files a continuation, it is a virtual certainty that any other secured party would ratify or adopt the continuation, to protect its interest, if it still has one. Practically, it is exceedingly rare to see multiple concurrent continuations, though it would be the best practice for each secured party to file its own continuation.

More next time on the risks and consequences associated with the confusion from multiple secured parties on a single financing statement.