S610

SENATE, No. 610

STATE OF NEW JERSEY

INTRODUCED FEBRUARY 5, 1996

By Senator MARTIN

An Act concerning security interests, amending various parts of the statutory law and supplementing chapter 11 of Title 12A of the New Jersey Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. N.J.S.12A:9-105 is amended to read as follows:

12A:9-105. Definitions and Index of Definitions.

(1) In this chapter unless the context otherwise requires:

(a) "Account debtor" means the person who is obligated on an account, chattel paper or general intangible;

(b) "Chattel paper" means a writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific goods, but a charter or other contract involving the use or hire of a vessel is not chattel paper. When a transaction is evidenced both by such a security agreement or a lease and by an instrument or a series of instruments, the group of writings taken together constitutes chattel paper;

(c) "Collateral" means the property subject to a security interest, and includes accounts and chattel paper which have been sold;

(d) "Debtor" means the person who owes payment or other performance of the obligation secured, whether or not he owns or has rights in the collateral, and includes the seller of accounts or chattel paper. Where the debtor and the owner of the collateral are not the same person, the term "debtor" means the owner of the collateral in any provision of the chapter dealing with the collateral, the obligor in any provision dealing with the obligation, and may include both where the context so requires;

(e) "Deposit account" means a demand, time, savings, passbook or like account maintained with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a certificate of deposit;

(f) "Document" means document of title as defined in the general definitions of chapter 1 (12A:1-201) , and a receipt of the kind described in subsection (2) of 12A:7-201;

(g) "Encumbrance" includes real estate mortgages and other liens on real estate and all other rights in real estate that are not ownership interests;

(h) "Goods" includes all things which are movable at the time the security interest attaches or which are or are to become fixtures (12A:9-313), but does not include money, documents, instruments, accounts, chattel paper, general intangibles, or minerals or the like (including oil and gas) before extraction. "Goods" also includes standing timber which is to be cut and removed under a conveyance or contract for sale, the unborn young of animals, and growing crops;

(i) "Instrument" means a negotiable instrument (defined in 12A:3-104), or a certificated security (defined in 12A:8-102) or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in ordinary course of business transferred by delivery with any necessary indorsement or assignment;

(j) "Mortgage" means a consensual interest created by a real estate mortgage, a trust deed on real estate, or the like;

(k) An advance is made "pursuant to commitment" if the secured party has bound himself to make it, whether or not a subsequent event of default or other event not within his control has relieved or may relieve him from his obligation;

(l) "Security agreement" means an agreement which creates or provides for a security interest;

(m) "Secured party" means a lender, seller or other person in whose favor there is a security interest, including a person to whom accounts or chattel paper have been sold. When the holders of obligations issued under an indenture of trust, equipment trust agreement or the like are represented by a trustee or other person, the representative is the secured party.

(2) Other definitions applying to this chapter and the sections in which they appear are:

"Account." 12A:9-106.

"Attach." 12A:9-203.

"Construction mortgage." 12A:9-313 (1).

"Consumer goods." 12A:9-109 (1).

"Equipment." 12A:9-109 (2).

"Farm products." 12A:9-109 (3).

"Fixture." 12A:9-313.

["Fixture filing." 12A:9-313.]

"General intangibles." 12A:9-106.

"Inventory." 12A:9-109 (4).

"Lien creditor." 12A:9-301 (3).

"Proceeds." 12A:9-306 (1).

"Purchase money security interest." 12A:9-107.

"United States." 12A:9-103 (3).

(3) The following definitions in other chapters apply to this chapter:

"Check." 12A:3-104.

"Contract for sale." 12A:2-106.

"Holder in due course." 12A:3-302.

"Note." 12A:3-104.

"Sale." 12A:2-106.

(4) In addition chapter 1 contains general definitions and principles of construction and interpretation applicable throughout this chapter.

(cf: P.L.1989, c.348, s.49)

2. N.J.S.12A:9-302 is amended to read as follows:

12A:9-302. When Filing Is Required to Perfect Security Interests; Security Interests to Which Filing Provisions of This Chapter Do Not Apply.

(1) A financing statement shall be filed to perfect all security interests except the following:

(a) A security interest in collateral in possession of the secured party under 12A:9-305;

(b) A security interest temporarily perfected in instruments or documents without delivery under 12A:9-304 or in proceeds for a 10-day period under 12A:9-306;

(d) A purchase money security interest in consumer goods; but filing is required for a motor vehicle required to be registered; and [fixture] filing is required for priority over conflicting interests in fixtures to the extent provided in 12A:9-313;

(e) An assignment of accounts which does not alone or in conjunction with other assignments to the same assignee transfer a significant part of the outstanding accounts of the assignor;

(f) A security interest of a collecting bank ([12A:4-208] 12A:210) or in securities (12A:8-321) or arising under the chapter on sales (see 12A:9-113) or covered in subsection (3) of this section;

(g) An assignment for the benefit of all the creditors of the transferor, and subsequent transfers by the assignee thereunder.

(2) If a secured party assigns a perfected security interest, no filing under this chapter is required in order to continue the perfected status of the security interest against creditors of and transferees from the original debtor.

(3) The filing of a financing statement otherwise required by this chapter is not necessary or effective to perfect a security interest in property subject to:

(a) A statute or treaty of the United States which provides for a national or international registration or a national or international certificate of title or which specifies a place of filing different from that specified in this chapter for filing of the security interest; or

(b) The following statutes of this State:

R.S.39:10-1 to R.S.39:10-9 both inclusive;

P.L.1971, c.311 (C.39:10-9.1 and C.39:10-9.2);

R.S.39:10-10 to R.S.39:10-16 both inclusive;

R.S.39:10-18 to R.S.39:10-25 both inclusive;

P.L.1984, c.152 (C.12:7A-1 to C.12:7A-29 both inclusive);

but during any period in which collateral is inventory held for sale by a person who is in the business of selling goods of that kind, the filing provisions of this chapter (subchapter 4) apply to a security interest in that collateral created by [him] the person as debtor; or

(c) a certificate of title statute of another jurisdiction under the law of which indication of a security interest on the certificate is required as a condition of perfection (subsection (2) of 12A:9-103).

(4) Compliance with a statute or treaty described in subsection (3) is equivalent to the filing of a financing statement under this chapter, and a security interest in property subject to the statute or treaty can be perfected only by compliance therewith except as provided in 12A:9-103 on multiple state transactions. Duration and renewal of perfection of a security interest perfected by compliance with the statute or treaty are governed by the provisions of the statute or treaty; in other respects the security interest is subject to this chapter.

(cf: P.L.1995, c.28, s.9)

3. N.J.S.12A:9-313 is amended to read as follows:

12A:9-313. Priority of security interests in fixtures.

(1) In this section and in the provisions of subchapter 4 of this chapter referring to [fixture filing] financing statements covering fixtures, unless the context otherwise requires

(a) Goods are "fixtures" when they are or are to become so related to particular real estate that an interest in them arises under real estate law.

(b) [A "fixture filing" is the filing in the office where a mortgage on the real estate would be filed or recorded of a financing statement covering goods which are or are to become fixtures and conforming to the requirements of subsection (5) of 12A:9-402.](deleted by amendment, P.L. , c. .)

(c) A mortgage is a "construction mortgage" to the extent that it secures an obligation incurred for the construction of an improvement on land including the acquisition cost of the land, if the recorded writing so indicates.

(2) A security interest under this chapter may be created in goods which are fixtures or may continue in goods which become fixtures, but no security interest exists under this chapter in ordinary building materials incorporated into an improvement on land.

(3) This chapter does not prevent creation of an encumbrance upon fixtures pursuant to real estate law.

(4) A perfected security interest in fixtures has priority over the conflicting interest of an encumbrancer or owner of the real estate where

(a) The security interest is a purchase money security interest, the interest of the encumbrancer or owner arises before the goods become fixtures, the security interest is perfected by a [fixture] filing before the goods become fixtures or within 10 days thereafter, and the debtor has an interest of record in the real estate or is in possession of the real estate; or

(b) The security interest is perfected by a [fixture] filing before the interest of the encumbrancer or owner is of record, the security interest has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner, and the debtor has an interest of record in the real estate or is in possession of the real estate; or

(c) The fixtures are readily removable factory or office machines or readily removable replacements of domestic appliances which are consumer goods, and before the goods become fixtures the security interest is perfected by any method permitted by this chapter; or

(d) The conflicting interest is a lien on the real estate obtained by legal or equitable proceedings after the security interest was perfected by any method permitted by this chapter.

(5) A security interest in fixtures, whether or not perfected, has priority over the conflicting interest of an encumbrancer or owner of the real estate where

(a) The encumbrancer or owner has consented in writing to the security interest or has disclaimed an interest in the goods as fixtures; or

(b) The debtor has a right to remove the goods as against the encumbrancer or owner. If the debtor's right terminates, the priority of the security interest continues for a reasonable time.

(6) Notwithstanding paragraph (a) of subsection (4) but otherwise subject to subsections (4) and (5), a security interest in fixtures is subordinate to a construction mortgage recorded before the goods become fixtures if the goods become fixtures before the completion of the construction. To the extent that it is given to refinance a construction mortgage, a mortgage has this priority to the same extent as the construction mortgage.

(7) In cases not within the preceding subsections, a security interest in fixtures is subordinate to the conflicting interest of an encumbrancer or owner of the related real estate who is not the debtor.

(8) When the secured party has priority over all owners and encumbrancers of the real estate, he may, on default, subject to the provisions of subchapter 5, remove his collateral from the real estate but he must reimburse any encumbrancer or owner of the real estate who is not the debtor and who has not otherwise agreed for the cost of repair of any physical injury, but not for any diminution in value of the real estate caused by the absence of the goods removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate security for the performance of this obligation.

(cf: P.L.1981, c.138, s.23)

4. N.J.S.12A:9-401 is amended to read as follows:

12A:9-401. Place of filing; erroneous filing; removal of collateral.

(1) The proper place to file in order to perfect a security interest is [as follows:

(a) when the collateral is equipment used in farming operations, or farm products, or accounts or general intangibles arising from or relating to the sale of farm products by a farmer, or consumer goods, then in the office of the recording officer in the county of the debtor's residence or if the debtor is not a resident of this State then in the office of the recording officer in the county where the goods are kept, and in addition, when the collateral is crops growing or to be grown, in the office of the recording officer in the county where the land is located. The recording officer of the county means the register of deeds and mortgages and his office in counties having such an officer and office, and the county clerk and his office in other counties;

(b) when the collateral is timber to be cut or is minerals or the like (including oil and gas) or accounts subject to subsection (5) of 12A:9-103, or when the financing statement is filed as a fixture filing (12A:9-313) and the collateral is goods which are or are to become fixtures, then in the office where a mortgage on the real estate would be filed or recorded;

(2) [ A filing which is made in good faith in an improper place or not in all of the places required by this section is nevertheless effective with regard to any collateral as to which the filing complied with the requirements of this chapter and is also effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of such financing statement.](Deleted by amendment, P.L. , c. .)

(3) [A filing which is made in the proper place in this State continues effective even though the debtor's residence or place of business or the location of the collateral or its use, whichever controlled the original filing, is thereafter changed.](Deleted by amendment, P.L. , c. .)

(4) The rules stated in 12A:9-103 determine whether filing is necessary in this State.

(5) [For the purposes of this section, the residence of an organization is its place of business if it has one or its chief executive office if it has more than one place of business.](Deleted by amendment, P.L. , c. .)

(6) The Secretary of State shall maintain records of filed financing statements and of indexes to them. To the extent feasible, the Secretary of State shall establish a system that allows the public remote access to records and indexes and to conduct searches and copy the names and addresses of debtors and creditors and descriptions of collateral from any filing. The Secretary of State may establish and charge a reasonable fee for this access under regulations promulgated pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.).

(7) Each county may establish a system to provide the public remote access to the records of filed financing statements and of indexes to them established and maintained by the Secretary of State pursuant to subsection (6) of this section and may charge a reasonable fee for use of the remote access system.

(cf: P.L.1981, c.138, s.25)

5. N.J.S.12A:9-402 is amended to read as follows:

12A:9-402. Formal requisites of financing statement; amendments [mortgage as financing statement] .

(1) A financing statement is sufficient if it gives the names of the debtor and the secured party, is signed by the debtor, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral. A financing statement may be filed before a security agreement is made or a security interest otherwise attaches. When the financing statement covers crops growing or to be grown, the statement must also contain a description of the real estate concerned and the name of the record owner thereof. When the financing statement covers timber to be cut or covers minerals or the like (including oil and gas) or accounts subject to subsection (5) of 12A:9-103, or [when the financing statement is filed as a fixture filing] goods which are or are to become fixtures (12A:9-313) [and the collateral is goods which are or are to become fixtures], the statement must also comply with subsection (5). A copy of the security agreement is sufficient as a financing statement if it contains the above information and is signed by the debtor. A carbon, photographic or other reproduction of a security agreement or a financing statement is sufficient as a financing statement if the security agreement so provides or if the original has been filed in this State.

(2) A financing statement which otherwise complies with subsection (1) is sufficient when it is signed by the secured party instead of the debtor if it is filed to perfect a security interest in

(a) Collateral already subject to a security interest in another jurisdiction when it is brought into this State, or when the debtor's location is changed to this State. Such a financing statement must state that the collateral was brought into this State or that the debtor's location was changed to this State under such circumstances; or

(b) Proceeds under 12A:9-306 if the security interest in the original collateral was perfected. Such a financing statement must describe the original collateral; or

(d) Collateral acquired after a change of name, identity or corporate structure of the debtor (subsection (7)).

(3) A form substantially as follows is sufficient to comply with subsection (1):

Maturity Date (if any)...............................

For Filing Officer Use

File No. ......................................

Date and Hour of Filing .............................

(Last Name First)

Name of Debtor ........................................

Address ...............................................

Name(s) of Other Debtor(s) (if any) ...................

.........................................................

Address ...............................................

.........................................................

Address ...............................................

.........................................................

Name of Secured Party ...................................

Address .................................................

Name(s) of Other Secured Party(s) (if any) ..............

.........................................................

Address .................................................

.........................................................

Address .................................................

1. This financing statement covers the following types (or items) of property:

(Describe) ..............................................

CHECK X THE ITEMS WHICH APPLY

.........................................................

2. [] (If collateral is crops) The above described crops are growing or are to be grown on:

(Description of real estate and name of record owner) .........................................................

3. [] (If applicable) The above goods are or are to become fixtures on (Describe Real Estate) .................... [and this financing statement is to be filed for record in the real estate records]. (If the debtor does not have an interest of record) The name of a record owner is ....................................

4. [] (If applicable) The above timber is standing on (Describe Real Estate) ..............................

[and this financing statement is to be filed for record in the real estate records]. (If the debtor does not have an interest of record) The name of a record owner is .....................................................

5. [] (If applicable) The above minerals or the like (including oil and gas) or accounts will be financed at the wellhead or minehead, of the well or mine located on (Describe Real Estate) .................................

[and this financing statement is to be filed for record in the real estate records]. (If the debtor does not have an interest of record) The name of the record owner is .....................................................

6. [] Products of collateral are also covered.

(Use whichever is applicable.)

Signature(s) of Debtor(s)

........................................................

Signature(s) of Secured Party(s)

........................................................

(4) A financing statement may be amended by filing a writing signed by both the debtor and the secured party. An amendment does not extend the period of effectiveness of a financing statement. If any amendment adds collateral, it is effective as to the added collateral only from the filing date of the amendment. In this chapter, unless the context otherwise requires, the term "financing statement" means the original financing statement and any amendments.

(5) A financing statement covering timber to be cut or covering minerals or the like (including oil and gas) or accounts subject to subsection (5) of 12A:9-103, or [a financing statement filed as a fixture filing] goods which are or are to become fixtures (12A:9-313), must show that it covers this type of collateral, [must recite that it is to be filed for record in the real estate records, and the financing statement] and must contain a description of the real estate sufficient if it were contained in a mortgage of the real estate to give constructive notice of the mortgage under the law of this State. If the debtor does not have an interest of record in the real estate, the financing statement must show the name of a record owner.

(6) A mortgage is effective as a financing statement [filed as a fixture filing from the date of its recording] covering goods which are or are to become fixtures from the date of its recording if (a) the goods are described in the mortgage by item or type, (b) the goods are or are to become fixtures related to the real estate described in the mortgage, (c) the mortgage complies with the requirements for a financing statement in this section [other than a recital that it is to be filed in the real estate records], and (d) the mortgage is duly recorded. No fee with reference to the financing statement is required other than the regular recording and satisfaction fees with respect to the mortgage.

(7) A financing statement sufficiently shows the name of the debtor if it gives the individual, partnership or corporate name of the debtor, whether or not it adds other trade names or the names of partners. Where the debtor so changes his name or in the case of an organization its name, identity or corporate structure that a filed financing statement becomes seriously misleading, the filing is not effective to perfect a security interest in collateral acquired by the debtor more than 4 months after the change, unless a new appropriate financing statement is filed before the expiration of that time. A filed financing statement remains effective with respect to collateral transferred by the debtor even though the secured party knows of or consents to the transfer.

(8) A financing statement substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading.

(cf: P.L.1981, c.138, s.26)

6. N.J.S.12A:9-403 is amended to read as follows:

12A:9-403. Filing of financing statement.

(1) Presentation for filing of a financing statement, tender of the filing fee [and] or acceptance of the statement by the filing officer constitute filing under this chapter.

(2) Except as provided in subsection (6) a filed financing statement is effective for a period of five years from the date of filing. The effectiveness of a filed financing statement lapses on the expiration of the five-year period unless a continuation statement is filed prior to the lapse. If a security interest perfected by filing exists at the time insolvency proceedings are commenced by or against the debtor, the security interest remains perfected until termination of the insolvency proceedings and thereafter for a period of 60 days or until expiration of the five-year period, whichever occurs later. Upon lapse the security interest becomes unperfected, unless it is perfected without filing. If the security interest becomes unperfected upon lapse, it is deemed to have been unperfected as against a person who became a purchaser or lien creditor before lapse.

(3) A continuation statement may be filed by the secured party within six months prior to the expiration of the five-year period specified in subsection (2). Any such continuation statement must be signed by the secured party, identify the original statement by file number and state that the original statement is still effective. A continuation statement signed by a person other than the secured party of record must be accompanied by a separate written statement of assignment signed by the secured party of record and complying with subsection (2) of 12A:9-405, including payment of the required fee.

Upon timely filing of the continuation statement, the effectiveness of the original statement is continued for five years after the last date to which the filing was effective whereupon it lapses in the same manner as provided in subsection (2) unless another continuation statement is filed prior to such lapse. Succeeding continuation statements may be filed in the same manner to continue the effectiveness of the original statement. The filing officer shall so arrange matters by physical annexation of financing statements to continuation statements or other related filings, or by other means, that if he physically destroys the financing statements of a period more than five years past, those which have been continued by a continuation statement or which are still effective under subsection (6) shall be retained.

(4) Except as provided in subsection (7), a filing officer shall mark each statement with a file number and with the date and hour of filing and shall hold the statement or a microfilm or other photographic copy thereof for public inspection. In addition, the filing officer shall index the statements according to the name of the debtor and shall note in the index the file number and the address of the debtor given in the statement. A financing statement covering collateral which is or is to become a fixture or fixtures, or crops growing or to be grown, shall also be indexed in the name of the record owner of the realty.

(5) The uniform fee for filing, indexing and furnishing filing data for an original or a continuation statement or any amendment of either shall be $25.00.

(6) A real estate mortgage which is effective as a [fixture filing] filed financing statement under subsection (6) of 12A:9-402 remains effective [as a fixture filing] until the mortgage is released or satisfied of record or its effectiveness otherwise terminates as to the real estate.

(7) When a financing statement covers timber to be cut or covers minerals or the like (including oil and gas) or accounts subject to subsection (5) of 12A:9-103, or [is filed as a fixture filing]goods which are or are to become fixtures, it shall be filed [for record] and the filing officer shall index it under the names of the debtor and any owner of record shown on the financing statement [in the same fashion as if they were the mortgagors in a mortgage of the real estate described, and, to the extent that the law of this State provides for indexing of mortgages under the name of the mortgagee, under the name of the secured party as if he were the mortgagee thereunder, or where indexing is by description in the same fashion as if the financing statement were a mortgage of the real estate described].

(cf: P.L.1987, c.435, s.4)

7. N.J.S.12A:9-404 is amended to read as follows:

12A:9-404. Termination statement.

[12A:9-404.] (1) If a financing statement covering consumer goods is filed on or after the effective date of this act, then within one month or within 10 days following written demand by the debtor after there is no outstanding secured obligation and no commitment to make advances, incur obligations or otherwise give value, the secured party must file [with each filing officer with whom the financing statement was filed,] a termination statement to the effect that he no longer claims a security interest under the financing statement, which shall be identified by file number. In other cases whenever there is no outstanding secured obligation and no commitment to make advances, incur obligations or otherwise give value, the secured party must on written demand by the debtor send the debtor [, for each filing officer with whom the financing statement was filed,] a termination statement to the effect that he no longer claims a security interest under the financing statement, which shall be identified by the filing officer's file number. A termination statement signed by a person other than the secured party of record must be accompanied by a separate written statement of assignment signed by the secured party of record and complying with subsection (2) of 12A:9-405, including payment of the required fee. If the affected secured party fails to file such a termination statement as required by this subsection, or to send such a termination statement within 10 days after proper demand therefor he shall be liable to the debtor for $100.00, and in addition for any loss caused to the debtor by such failure.

(2) On presentation to the filing officer of such a termination statement he must note it in the index and attach it to the original financing statement.

If he has received the termination statement in duplicate, he shall return one copy of the termination statement to the secured party stamped to show the time of receipt thereof. If the filing officer has a microfilm or other photographic record of the financing statement, and of any related continuation statement, statement of assignment and statement of release, he may remove the originals from the files at any time after receipt of the termination statement, or if he has no such record, he may remove them from the files at any time after one year after receipt of the termination statement.

(3) The uniform fee for filing, attaching and indexing a termination statement including sending or delivering the financing statement shall be $25.00.

(cf: P.L.1987, c.435, s.5)

8. N.J.S.12A:9-405 is amended to read as follows:

12A:9-405. Assignment of security interest.

(1) A financing statement may disclose an assignment of a security interest in the collateral described in the financing statement by indication in the financing statement of the name and address of the assignee or by an assignment itself or a copy thereof on the face or back of the statement. On presentation to the filing officer of such a financing statement the filing officer shall mark the same as provided in 12A:9-403(4). The uniform fee for filing, indexing and furnishing filing data for a financing statement so indicating an assignment shall be $25.00.

(2) A secured party may assign of record all or a part of his rights under a financing statement by filing [in the place where the original financing statement was filed of] a separate written statement of assignment signed by the secured party of record and setting forth the name of the secured party of record and the debtor, the file number and the date of filing of the financing statement and the name and address of the assignee and containing a description of the collateral assigned. A copy of the assignment is sufficient as a separate statement if it complies with the preceding sentence. On presentation to the filing officer of such a separate statement, the filing officer shall mark such separate statement with the date and hour of filing. He shall note the assignment on the index of the financing statement [, or in the case of a fixture filing, or a filing covering timber to be cut, or covering minerals or the like (including oil and gas) or accounts subject to subsection (5) of 12A:9-103, he shall index the assignment under the name of the assignor as grantor and, to the extent that the law of this State provides for indexing the assignment of a mortgage under the name of the assignee, he shall index the assignment of the financing statement under the name of the assignee]. The uniform fee for filing, indexing and furnishing filing data about such a separate statement of assignment shall be $25.00. [Notwithstanding the provisions of this subsection, an assignment of record of a security interest in a fixture contained in a mortgage effective as a fixture filing (subsection (6) of 12A:9-402) may be made only by an assignment of the mortgage in the manner provided by the law of this State other than this act.]

(3) After the disclosure or filing of an assignment under this section, the assignee is the secured party of record.

(cf: P.L.1987, c.435, s.6)

9. (New section) Transition provisions for filing amendments.

a. A financing statement or continuation statement filed prior to the effective date of this 1996 amendatory and supplementary act shall remain effective until it lapses as provided pursuant to chapter 9 of Title 12A of the New Jersey Statutes. Such a financing statement or continuation statement covering after-acquired collateral remains effective with respect to collateral acquired after the effective date of this 1996 amendatory and supplementary act.

b. A financing statement that is filed in an office other than that of the Secretary of State prior to the effective date of this 1996 amendatory and supplementary act and that would lapse after the effective date of this 1996 amendatory and supplementary act may be continued by refiling a financing statement under N.J.S.12A:11-106(2) with the Secretary of State within six months before the statement would otherwise lapse.

10. N.J.S.12A:2A-103 is amended to read as follows:

12A:2A-103. Definitions and index of definitions.

(1) In this chapter unless the context otherwise requires:

(a) "Buyer in ordinary course of business" means a person who in good faith and without knowledge that the sale to the person is in violation of the ownership rights or security interest or leasehold interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind but does not include a pawnbroker. "Buying" may be for cash or by exchange of other property or on secured or unsecured credit and includes receiving goods or documents of title under a pre-existing contract for sale but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.

(b) "Cancellation" occurs when either party puts an end to the lease contract for default by the other party.

(c) "Commercial unit" means such a unit of goods as by commercial usage is a single whole for purposes of lease and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article, as a machine, or a set of articles, as a suite of furniture or a line of machinery, or a quantity, as a gross or carload, or any other unit treated in use or in the relevant market as a single whole.

(d) "Conforming" goods or performance under a lease contract means goods or performance that are in accordance with the obligations under the lease contract.

(e) "Consumer lease" means a lease that a lessor regularly engaged in the business of leasing or selling makes to a lessee who is a natural person and who takes under the lease primarily for a personal, family, or household purpose.

(f) "Fault" means wrongful act, omission, breach, or default.

(g) "Finance lease" means a lease with respect to which:

(i) the lessor does not select, manufacture, or supply the goods;

(ii) the lessor acquires the goods or the right to possession and use of the goods in connection with the lease; and

(iii) one of the following occurs:

(A) the lessee receives a copy of the contract by which the lessor acquired the goods or the right to possession and use of the goods before signing the lease contract;

(B) the lessee's approval of the contract by which the lessor acquired the goods or the right to possession and use of the goods is a condition to effectiveness of the lease contract;

(C) the lessee, before signing the lease contract, receives an accurate and complete statement designating the promises and warranties, and any disclaimers of warranties, limitations or modifications of remedies, or liquidated damages, including those of a third party, such as the manufacturer of the goods, provided to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods; or

(D) if the lease is not a consumer lease, the lessor, before the lessee signs the lease contract, informs the lessee in writing (a) of the identity of the person supplying the goods to the lessor, unless the lessee has selected that person and directed the lessor to acquire the goods or the right to possession and use of the goods from that person, (b) that the lessee is entitled under this chapter to the promises and warranties, including those of any third party, provided to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods, and (c) that the lessee may communicate with the person supplying the goods to the lessor and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies.

(h) "Goods" means all things that are movable at the time of identification to the lease contract, or are fixtures (12A:2A-309), but the term does not include money, documents, instruments, accounts, chattel paper, general intangibles, or minerals or the like, including oil and gas, before extraction. The term also includes the unborn young of animals.

(i) "Installment lease contract" means a lease contract that authorizes or requires the delivery of goods in separate lots to be separately accepted, even though the lease contract contains a clause "each delivery is a separate lease" or its equivalent.

(j) "Lease" means a transfer of the right to possession and use of goods for a term in return for consideration, but a sale, including a sale on approval or a sale or return, or retention or creation of a security interest is not a lease. Unless the context clearly indicates otherwise, the term includes a sublease.

(k) "Lease agreement" means the bargain, with respect to the lease, of the lessor and the lessee in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this chapter. Unless the context clearly indicates otherwise, the term includes a sublease agreement.

(l) "Lease contract" means the total legal obligation that results from the lease agreement as affected by this chapter and any other applicable rules of law. Unless the context clearly indicates otherwise, the term includes a sublease contract.

(m) "Leasehold interest" means the interest of the lessor or the lessee under a lease contract.

(n) "Lessee" means a person who acquires the right to possession and use of goods under a lease. Unless the context clearly indicates otherwise, the term includes a sublessee.

(o) "Lessee in ordinary course of business" means a person who in good faith and without knowledge that the lease to the person is in violation of the ownership rights or security interest or leasehold interest of a third party in the goods leases in ordinary course from a person in the business of selling or leasing goods of that kind but does not include a pawnbroker. "Leasing" may be for cash or by exchange of other property or on secured or unsecured credit and includes receiving goods or documents of title under a pre-existing lease contract but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.

(p) "Lessor" means a person who transfers the right to possession and use of goods under a lease. Unless the context clearly indicates otherwise, the term includes a sublessor.

(q) "Lessor's residual interest" means the lessor's interest in the goods after expiration, termination, or cancellation of the lease contract.

(r) "Lien" means a charge against or interest in goods to secure payment of a debt or performance of an obligation, but the term does not include a security interest.

(s) "Lot" means a parcel or a single article that is the subject matter of a separate lease or delivery, whether or not it is sufficient to perform the lease contract.

(t) "Merchant lessee" means a lessee that is a merchant with respect to goods of the kind subject to the lease.

(u) "Present value" means the amount as of a date certain of one or more sums payable in the future, discounted to the date certain. The discount is determined by the interest rate specified by the parties if the rate was not manifestly unreasonable at the time the transaction was entered into; otherwise, the discount is determined by a commercially reasonable rate that takes into account the facts and circumstances of each case at the time the transaction was entered into.

(v) "Purchase" includes taking by sale, lease, mortgage, security interest, pledge, gift, or any other voluntary transaction creating an interest in goods.

(w) "Sublease" means a lease of goods the right to possession and use of which was acquired by the lessor as a lessee under an existing lease.

(x) "Supplier" means a person from whom a lessor buys or leases goods to be leased under a finance lease.

(y) "Supply contract" means a contract under which a lessor buys or leases goods to be leased.

(z) "Termination" occurs when either party pursuant to a power created by agreement or law puts an end to the lease contract otherwise than for default.

(2) Other definitions applying to this chapter and the sections in which they appear are:

"Accessions"[.] 12A:2A-310(1).

"Construction mortgage" 12A:2A-309(1)(d).

"Encumbrance" 12A:2A-309(1)(e).

"Fixtures" 12A:2A-309(1)(a).

["Fixture filing" 12A:2A-309(1)(b).]

"Purchase money lease" 12A:2A-309(1)(c).

(3) The following definitions in other chapters apply to this chapter:

"Account" 12A:9-106.

"Between merchants" 12A:2-104(3).

"Buyer" 12A:2-103(1)(a).

"Chattel paper" 12A:9-105(1)(b).

"Consumer goods" 12A:9-109(1).

"Document" 12A:9-105(1)(f).

"Entrusting" 12A:2-403(3).

"General intangibles" 12A:9-106.

"Good faith" 12A:2-103(1)(b).

"Instrument" 12A:9-105(1)(i).

"Merchant" 12A:2-104(1).

"Mortgage" 12A:9-105(1)(j).

"Pursuant to commitment" 12A:9-105(1)(k).

"Receipt" 12A:2-103(1)(c).

"Sale" 12A:2-106(1).

"Sale on approval" 12A:2-326.

"Sale or return" 12A:2-326.

"Seller" 12A:2-103(1)(d).

(4) In addition chapter 1 contains general definitions and

principles of construction and interpretation applicable throughout this chapter.1

(cf: N.J.S.12A:2A-103)

11. N.J.S.12A:2A-309 is amended to read as follows:

12A:2A-309. Lessor's and lessee's rights when goods become fixtures.

(1) In this section:

(a) goods are "fixtures" when they become so related to particular real estate that an interest in them arises under real estate law;

(b) [a "fixture filing" is the filing, in the office where a mortgage on the real estate would be filed or recorded, of a financing statement covering goods that are or are to become fixtures and conforming to the requirements of 12A:9-402(5);](Deleted by amendment, P.L. , c. .)

(c) a lease is a "purchase money lease" unless the lessee has possession or use of the goods or the right to possession or use of the goods before the lease agreement is enforceable;

(d) a mortgage is a "construction mortgage" to the extent it secures an obligation incurred for the construction of an improvement on land including the acquisition cost of the land, if the recorded writing so indicates; and

(e) "encumbrance" includes real estate mortgages and other liens on real estate and all other rights in real estate that are not ownership interests.

(2) Under this chapter a lease may be of goods that are fixtures or may continue in goods that become fixtures, but no lease exists under this chapter of ordinary building materials incorporated into an improvement on land.

(3) This chapter does not prevent creation of a lease of fixtures pursuant to real estate law.

(4) The perfected interest of a lessor of fixtures has priority over a conflicting interest of an encumbrancer or owner of the real estate if:

(a) the lease is a purchase money lease, the conflicting interest of the encumbrancer or owner arises before the goods become fixtures, the interest of the lessor is perfected [by a fixture filing] before the goods become fixtures or within 10 days thereafter, and the lessee has an interest of record in the real estate or is in possession of the real estate; or

(b) the interest of the lessor is perfected [by a fixture filing] before the interest of the encumbrancer or owner is of record, the lessor's interest has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner, and the lessee has an interest of record in the real estate or is in possession of the real estate.

(5) The interest of a lessor of fixtures, whether or not perfected, has priority over the conflicting interest of an encumbrancer or owner of the real estate if:

(a) the fixtures are readily removable factory or office machines, readily removable equipment that is not primarily used or leased for use in the operation of the real estate, or readily removable replacements of domestic appliances that are goods subject to a consumer lease, and before the goods become fixtures the lease contract is enforceable; or

(b) the conflicting interest is a lien on the real estate obtained by legal or equitable proceedings after the lease contract is enforceable; or

(c) the encumbrancer or owner has consented in writing to the lease or has disclaimed an interest in the goods as fixtures; or

(d) the lessee has a right to remove the goods as against the encumbrancer or owner. If the lessee's right to remove terminates, the priority of the interest of the lessor continues for a reasonable time.

(6) Notwithstanding subsection (4)(a) but otherwise subject to subsections (4) and (5), the interest of a lessor of fixtures, including the lessor's residual interest, is subordinate to the conflicting interest of an encumbrancer of the real estate under a construction mortgage recorded before the goods become fixtures if the goods become fixtures before the completion of the construction. To the extent given to refinance a construction mortgage, the conflicting interest of an encumbrancer of the real estate under a mortgage has this priority to the same extent as the encumbrancer of the real estate under the construction mortgage.

(7) In cases not within the preceding subsections, priority between the interest of a lessor of fixtures, including the lessor's residual interest, and the conflicting interest of an encumbrancer or owner of the real estate who is not the lessee is determined by the priority rules governing conflicting interests in real estate.

(8) If the interest of a lessor of fixtures, including the lessor's residual interest, has priority over all conflicting interests of all owners and encumbrancers of the real estate, the lessor or the lessee may (i) on default, expiration, termination, or cancellation of the lease agreement but subject to the lease agreement and this chapter, or (ii) if necessary to enforce other rights and remedies of the lessor or lessee under this chapter, remove the goods from the real estate, free and clear of all conflicting interests of all owners and encumbrancers of the real estate, but the lessor or lessee shall reimburse any encumbrancer or owner of the real estate who is not the lessee and who has not otherwise agreed for the cost of repair of any physical injury, but not for any diminution in value of the real estate caused by the absence of the goods removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the party seeking removal gives adequate security for the performance of this obligation.

(9) Even though the lease agreement does not create a security interest, the interest of a lessor of fixtures, including the lessor's residual interest, is perfected by filing a financing statement [as a fixture filing] for leased goods that are or are to become fixtures in accordance with the relevant provisions of the chapter on Secured Transactions (chapter 9).

(cf: N.J.S.12A:2A-309)

12. This act shall take effect on July 1, 1996.

STATEMENT

Under chapter 9 of Title 12A of the New Jersey Statutes, a secured party is required to file a financing statement to perfect its security interest in collateral. Senate, No. 607, as amended, would reform the current filing system in New Jersey by establishing a centralized State-wide filing system in the Office of the Secretary of State.

This centralized system would, in addition, make "fixture filings" unnecessary. Any person conducting a search with respect to financial filings covering fixtures would be able to find these through the centralized system and would at the same time know that this search covers all such filings.

This bill requires the Secretary of State to maintain records of filed financial statements and of indexes to them and, to the extent feasible, to establish a system that will allow the public remote access to records and indexes. The Secretary of State is permitted to charge a reasonable fee for such services.

Under the bill, a mortgage which meets the requirements set forth in the bill is effective as a financing statement for goods which are or are to become fixtures and the mortgage remains effective as a filed financing statement until the mortgage is released or satisfied of record or its effectiveness otherwise terminates as to the real estate.

The bill provides that each county may establish a system to provide the public remote access to the records of filed financing statements and of indexes to them established and maintained by the Secretary of State under this bill and may charge a reasonable fee for use of the remote access system.

Finally, the bill provides for the transition to this new system of filing and for the abolition of the fixture filing rule.

Reforms filing system for perfecting security interests.