South Carolina General Assembly
114th Session, 2001-2002

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Bill 4682

                    Current Status

Bill Number:                      4682
Ratification Number:              222
Act Number:                       192
Type of Legislation:              General Bill GB
Introducing Body:                 House
Introduced Date:                  20020207
Primary Sponsor:                  Harrison
All Sponsors:                     Harrison
Drafted Document Number:          l:\council\bills\dka\4663mm02.doc
Date Bill Passed both Bodies:     20020307
Date of Last Amendment:           20020228
Governor's Action:                S
Date of Governor's Action:        20020322
Subject:                          UCC, secured transactions; provisions 
                                  inapplicable to transfer by government or 
                                  government unit after June 30, 2001


Body    Date      Action Description                     Com     Leg Involved
______  ________  ______________________________________ _______ ____________
------  20020424  Act No. A192
------  20020322  Signed by Governor
------  20020321  Ratified R222
House   20020307  Concurred in Senate amendment, 
                  enrolled for ratification
Senate  20020305  Read third time, returned with
------  20020304  Scrivener's error corrected
Senate  20020228  Amended, read second time
Senate  20020227  Recalled from Committee                11 SJ
Senate  20020221  Introduced, read first time,           11 SJ
                  referred to Committee
House   20020221  Read third time, sent to Senate
House   20020220  Amended, read second time
House   20020214  Recalled from Committee                25 HJ
House   20020207  Introduced, read first time,           25 HJ
                  referred to Committee

              Versions of This Bill
Revised on February 14, 2002 - Word format
Revised on February 20, 2002 - Word format
Revised on February 27, 2002 - Word format
Revised on February 28, 2002 - Word format
Revised on March 4, 2002 - Word format

View additional legislative information at the LPITS web site.

(Text matches printed bills. Document has been reformatted to meet World Wide Web specifications.)

(A192, R222, H4682)


Be it enacted by the General Assembly of the State of South Carolina:

Scope of Chapter 9

SECTION 1. Section 36-9-109(c) and (d) of the 1976 Code, as last amended by Act 67 of 2001, are further amended to read:

"(c) This chapter does not apply to the extent that:

(1) a statute, regulation, or treaty of the United States preempts this chapter; or

(2) the rights of a transferee beneficiary or nominated person under a letter of credit are independent and superior under Section 36-5-114.

(d) This chapter does not apply to:

(1) a landlord's lien, other than an agricultural lien, but Section 36-9-317 applies as to the priority of the landlord's lien;

(2) a lien, other than an agricultural lien, given by statute or other rule of law for services or materials, but Section 36-9-333 applies with respect to priority of the lien;

(3) an assignment of a claim for wages, salary, or other compensation of an employee;

(4) a sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of the business out of which they arose;

(5) an assignment of accounts, chattel paper, payment intangibles, or promissory notes which is for the purpose of collection only;

(6) an assignment of a right to payment under a contract to an assignee that also is obligated to perform under the contract;

(7) an assignment of a single account, payment intangible, or promissory note to an assignee in full or partial satisfaction of a preexisting indebtedness;

(8) a transfer of an interest in or an assignment of a claim under a policy of insurance, other than an assignment by or to a health care provider of a health care insurance receivable and any subsequent assignment of the right to payment, but Sections 36-9-315 and 36-9-322 apply with respect to proceeds and priorities in proceeds;

(9) an assignment of a right represented by a judgment, other than a judgment taken on a right to payment that was collateral;

(10) a right of recoupment or set-off, but:

(A) Section 36-9-340 applies with respect to the effectiveness of rights of recoupment or set-off against deposit accounts; and

(B) Section 36-9-404 applies with respect to defenses or claims of an account debtor;

(11) the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder, except to the extent that provision is made for:

(A) liens on real property in Sections 36-9-203 and 36-9-308;

(B) fixtures in Section 36-9-334;

(C) fixture filings in Sections 36-9-501, 36-9-502, 36-9-512, 36-9-516, and 36-9-519; and

(D) security agreements covering personal and real property in Section 36-9-604;

(12) an assignment of a claim arising in tort, other than a commercial tort claim, but Sections 36-9-315 and 36-9-322 apply with respect to proceeds and priorities in proceeds;

(13) an assignment of a deposit account in a consumer transaction, but Sections 36-9-315 and 36-9-322 apply with respect to proceeds and priorities in proceeds; or

(14) a transfer by a government or governmental unit."

South Carolina Reporter's Comments

SECTION 2. The South Carolina Reporter's Comment for Section 36-9-109 is amended to read:

"South Carolina Reporter's Comment

A. Transactions Creating a Security Interest in Personal Property

Section 36-9-109(1)(a) provides that unless subject a statutory exception, Article 9 applies to 'a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract.' The breadth of this provision can be appreciated by examining the scope of the term 'personal property.' Although the statute does not define the term, it is clear that the term includes a significantly broader range of collateral than prior law. The following lists types of personal property that can be subject to a security interest under Article 9. This classification of collateral should prove useful in a discussion of attachment, perfection, priority, and default because the statute draws distinctions in these areas based upon the type of collateral in issue.

1. Types of Personal Property which may be Subject to Article 9 Security Interest

a. Accounts--Section 36-9-102(a)(2)

Section 36-9-102(a)(2) defines 'account' to mean a right to payment of a monetary obligation, whether or not earned by performance.

(1) for 'property' sold, leased, licensed, assigned, or otherwise disposed of;

(2) for services rendered;

(3) for issuance of a policy of insurance;

(4) for incurring a secondary obligation such as a guarantee or issuing a letter of credit;

(5) for energy provided;

(6) for hiring a vessel;

(7) arising out of the use of a charge or credit card;

(8) as winnings in a government sponsored lottery or game of chance;

(9) health care insurance receivables which are defined in Section 36-9-102(a)(46) as claims under a policy of insurance for payment of an obligation for health care goods or services provided.

b. Chattel paper--Section 36-9-102(a)(11)

Chattel Paper is defined as a record that evidences a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods, or a lease of specific goods. Chattel paper may either be 'tangible chattel paper' as defined in Section 36-9-102(a)(78) as chattel paper consisting of information inscribed on a tangible form or 'electronic chattel paper' defined in Section 36-9-102(a)(31) as chattel paper consisting of information stored in an electronic medium.

c. Commercial Tort Claims--Section 36-9-102(a)(13)

Commercial tort claims include all tort claims held by an 'organization' and tort claims of individuals that arose in the course of the claimant's business and do not cover damages for personal injury or death.

d. Deposit Accounts--Section 36-9-102(a)(29)

Deposit accounts are defined as time savings, passbook, or similar accounts maintained with a bank and which are not evidenced by an instrument.

e. Documents--Section 36-9-102(a)(30)

f. General Intangibles--Section 36-9-102(a)(44)

General intangibles is the catch all category of collateral and is defined to include 'any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction.' Software is expressly included in the definition of general intangibles. Revised Article 9 has a subset of general intangibles referred to as 'payment intangibles' which are defined as general intangibles under which the account debtor's principal obligation is a monetary obligation. See Section 36-9-102(a)(6).

g. Goods--Section 36-9-109(a)(44)

Goods are defined as 'all things that are moveable when a security interest attaches.' The term expressly includes fixtures; standing timber to be cut under a conveyance or contract of sale; unborn animals; crops including crops produced on trees, vines, and bushes; and manufactured homes as defined in Section 36-9-102(a)(53). Goods also include a computer program embedded in goods if the program is customarily considered part of the goods or by becoming the order of the goods a person acquires the right to use the program.

The broad category of goods is divided into several subsets.

(1) Accessions--Section 36-9-102(a)(1)

Goods physically united to other goods but which do not lose their identity.

(2) As Extracted Collateral--Section 36-9-102(a)(6)(A)

As extracted collateral includes oil, gas, or other minerals that are subject to a security interest created by a person who owns the collateral before extraction and which attaches upon extraction.

(3) Consumer Goods--Section 36-9-102(a)(1)

Goods that are used or bought primarily for personal, family, or household purposes.

(4) Equipment--Section 36-9-102(a)(33)

Goods other than inventory, farm products or inventory.

(5) Farm Products--Section 36-9-102(a)(34)

Goods, excluding standing timber, owned by a debtor engaged in farming operations which are crops, aquatic goods produced in aquacultural operations, livestock, farming supplies, or products of crops or livestock in their unmanufactured state.

(6) Fixtures--Section 36-9-102(a)(41)

Goods so related to real property that an interest in them arises under real property law.

(7) Inventory--Section 36-9-102(a)(48)

Inventory includes goods other than farm products which are leased by a lessor, held for sale, lease, or to be furnished under a service contract, raw materials, work in progress, and materials used or consumed in a business.

h. Instruments--Section 36-9-102(a)(47)

Negotiable instruments and any other writing that evidences a right to payment and is a type that is transferred in the ordinary course by delivery and any necessary indorsement.

i. Investment Property--Section 36-9-102(a)(49)

Investment property includes:

(1) Certificated Securities--Section 36-8-102(a)(4) (1994)

(2) Uncertificated Securities--Section 36-8-102(a)(18) (1994)

(3) Securities Entitlements--Section 36-8-102(a)(7) (1994)

(4) Securities Accounts--Section 36-8-501(a) (1994)

(5) Commodity Contracts--Section 36-9-102(a)(15)

(6) Commodity Accounts--Section 36-9-102(a)(14)

j. Letter of Credit Rights--Section 36-9-102(a)(51)

A letter of credit right is a beneficiary's right to payment under a letter of credit, but does not include the right of a beneficiary to demand payment under a letter of credit. To illustrate this definition assume that Buyer as applicant and Bank as issuer enter into a letter of credit naming Seller as beneficiary. The letter of credit provides that Bank will make payment to Seller upon presentation of documents evidencing Seller's shipment of goods to Buyer. Seller's letter of credit rights include the right to receive payment upon its presentation of documents. Seller's letter of credit rights do not include the right to assign his status as beneficiary to another supplier of goods.

B. Landlord's lien

Section 9-109(d)(1) of the 1999 Official Text provides that Article 9 does not apply 'to a landlord's lien, other than an agricultural lien.' South Carolina has revised the Official Text of Sections 9-109(d)(1) and 9-317(a)(2) to clarify that Article 9 provides the priority rule governing a conflict between an Article 9 security interest and a landlord's lien for distraint. The revision in Section 36-9-109(d)(1) provides that the priority conflict between a landlord's lien and a security interest is governed by Section 36-9-317. The revision in Section 36-9-317(a)(2), in effect, provides that a secured party who files or perfects before a landlord levies a distress warrant has priority over the landlord.

Under Section 36-9-317(a)(2) a landlord's lien for distraint will have priority over a security interest only if the landlord establishes its lien before the earlier of the time that the security interest is perfected or a financing statement covering the collateral is filed. A landlord seeking to collect rent through distraint does not obtain a lien until there is an actual levy of the distress warrant. Burnett v. Boukedes, 240 S.C. 144, 125 S.E. 2de 10, 115 (1962). Therefore, if a secured party files a financing statement or otherwise perfects its security interest before the landlord levies on the collateral pursuant to a distress warrant, the secured party will have priority over the landlord. The South Carolina revisions in Sections 36-9-109(d)(1) and 36-9-317(a)(2) are consistent with the decision in Ex Parte J.M. Smith Corp., Shearouse Advance Sheet No. 25169 (S.C., July 10, 2000)

C. Agricultural liens

Section 36-9-109(a)(2) provides that Article 9 extends to agricultural liens. Section 36-9-102(a)(5) defines an agricultural lien as an interest, other than a security interest, in farm products which meet three requirements. First, an agricultural lien must secure payment or performance of an obligation for either goods or services furnished in connection with a debtor's farming operation or rent on real property leased by a debtor in connection with its farming operation. Second, an agricultural lien must be created by statute in favor of a person that either in the ordinary course of business provided goods or services to the debtor in connection with the debtor's farming operation or leased real property to a debtor in connection with the debtor's farming operation. Third, the effectiveness of an agricultural lien must not depend upon the lienholder's possession of the encumbered property.

South Carolina has three statutory liens that qualify as agricultural liens under revised Section 36-9-102(a)(3). Section 39-13-10, S.C. Code Ann. (1976) provides that a landlord leasing land for agricultural purposes has 'a prior and preferred lien' upon all crops raised on the leased land to secure the payment of rent. Under Section 29-13-10 no writing or recording is necessary to create a landlord's lien for rent and the lien exists from the date of the lease contract whether the contract is verbal or in writing.

Section 29-13-20, S.C. Code Ann. (1976) provides that laborers who assist in making a crop have a lien upon the crop to the extent of the amount due for their labor.

Section 29-13-10, S.C. Code Ann. (1976) further provides that landlord has a lien on crops raised by a tenant for all advances that the landlord made to tenant during the year the crop was raised. Section 29-3-40, S.C. Code Ann. (Supp. 1999) provides that the landlord's lien for advances must be indexed in the office of the register of deeds or clerk of court in the county in which the land is located. That section further provides that indexing of the lien constitutes notice to third parties from the date of the indexing and protects the lienholder against the claims of purchasers or creditors who obtain possession of the crop after the lien is indexed.

Section 29-13-30, S.C. Code Ann. (1976) provides priority rules for these three agricultural liens. Under that provision the landlord's lien upon a crop for rent is 'in preference to all other liens.' Next in priority is the laborer's lien upon crop for the amount due for such labor. As between unpaid laborers, the statute provides that there shall be no preference. Finally, the third priority is awarded to the landlord's lien for advances.

Including agricultural liens within the scope of Article 9 requires holders of such liens to meet the Code's requirement for perfection. Significantly, an agricultural lien does not have to satisfy the requirements of Section 36-9-203 in order to attach and become enforceable. Therefore, the inclusion of agricultural liens within the scope of Article 9 does not render a verbal landlord's lien for rent unenforceable. An agricultural lienholder, however, must meet the perfection requirements of revised Article 9. Under revised Section 36-9-302, South Carolina law controls the perfection of agricultural liens upon farm products located in the State. Section 36-9-310(a) provides that agricultural liens are perfected by filing a financing statement. Under Section 36-9-501(2) the Secretary of State's Office is the place in which to file to perfect an agricultural lien.

Article 9 has a limited impact upon the priority of agricultural liens. If an agricultural lien is unperfected, Section 36-9-317 subordinates the lien to perfected agricultural liens and security interests, lien creditors, and buyers who give value and take delivery without knowledge of the lien. If a South Carolina agricultural lien is perfected, however, it is not subject to Article 9's normal priority rules. Section 36-9-322(g) provides that a perfected agricultural lien has priority over a conflicting security interest or agricultural lien on the same collateral if the statute creating the agricultural lien so provides. Section 29-13-30 sets forth priority rules governing the agricultural liens created by Sections 29-13-10 and 29-13-20. Under these priority rules the landlord's lien for rent in 'preference to all other liens', laborer's liens are 'next in priority', and the landlord's lien for advances 'shall be paid next, after the satisfaction of the landlord's lien for rent and the laborer's lien for labor. . .' The priority rules of Section 29-13-30 should be read as displacing Article 9 general priority rules. See Poinsett Construction Co. v. Fischer, 301 S.C. 343, 391 S.E. 2d 875 (Ct. App. 1990) (statutory liens afforded 'first lien' status under the statutes creating the lien had priority over an earlier perfected security interest).

To illustrate the application of the priority rules governing agricultural liens consider the following:

On March 1, 2002, SP enters into a written security agreement with Farmer retaining a security interest in Farmer's crop to secure a loan. On March 1, 2002, SP files a financing statement to perfect its security interest. On April 1, 2002, Landlord enters into verbal contract with Farmer under which Landlord leases land to Farmer to raise his crop. Under Section 29-13-10 Landlord obtains an agricultural lien upon Farmer's crop to secure the rent arising under the lease. If Landlord perfects his agricultural lien by filing a financing statement, Landlord will have priority over SP under Sections 36-9-322(g) and 29-13-30. If Landlord fails to perfect his agricultural lien, SP will have priority over Sections 36-9-317(a)(1) and 36-9-322(a)(2).

D. Transfers by government and governmental units.

Subsection (14) was added after the revision of this section in 2000. Transfers by governments and governmental units lay outside of the scope of Article 9 prior to its 2000 revision. Subsection (14) was added to provide that as of the effective date of the 2000 revision transfers by government and governmental units will continue to lay outside the scope of Article 9.

Definitional Cross Reference:

'Account' Section 36-9-102(a)(2)

'Agricultural Lien' Section 36-9-102(a)(6)

'Chattel Paper' Section 36-9-102(a)(11)

'Commercial Tort Claim' Section 36-9-102(a)(13)

'Consignment' Section 36-9-102(a)(20)

'Deposit Account' Section 36-9-102(a)(29)

'Fixture' Section 36-9-102(a)(41)

'Health Care Insurance Receivable' Section 36-9-102(a)(46)

'Letter of Credit' Section 36-5-103(1)(a)

[Section 36-5-102(a)(10) 1995 Revision]

'Nominated Person' [Section 36-5-102(a)(11) 1995 Revision]

'Payment Intangible' Section 36-9-102(a)(61)

'Promissory Note' Section 36-9-102(a)(65)

'Transferee Beneficiary' See Section 36-6-116

[See Sections 36-5-112 and 36-5-114(e) 1995 Revision]"

Time effective

SECTION 3. This act takes effect upon approval by the Governor.

Ratified the 21st day of March, 2002.

Approved the 22nd day of March, 2002.


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