First National Bank of Picayune v. Pearl River Fabricators, Inc.

Pearl River Fabricators, Inc. (Pearl River) (defendant) was a Mississippi business that took a loan from First National Bank of Picayune (FNB) (plaintiff). Pearl River signed a security agreement in favor of FNB, giving FNB a security interest in a 90-foot dredge and a sand-and-gravel deck shaker. FNB perfected by filing a financing statement in Mississippi. Pearl River sold the equipment to Growth Fund Industries, Inc. (GFI) in October 2001. In December 2001, GFI sold the equipment to Phoenix Associates Land Syndicate, Inc. (Phoenix). In May 2002, the equipment was physically moved by Pearl River from its office in Picayune, Mississippi to Phoenix’s office in Madisonville, Louisiana. In November 2003, FNB filed a financing statement in Louisiana identifying its collateral. In January 2004, Pearl River failed to pay FNB, and FNB requested that the collateral be seized and sold. Phoenix argued that FNB did not have a perfected security interest because it had failed to file the Louisiana financing statement within a year after the collateral’s move to Louisiana. Accordingly, a Louisiana statute would apply that allowed a purchaser for value that received delivery of the collateral before a security interest was perfected to take free of that security interest. The trial court ruled for FNB, finding that FNB’s perfected Mississippi security interest was enforceable in Louisiana. An appellate court reversed, finding that FNB had failed to perfect its security interest within one year. FNB appealed. The Louisiana statute in question indicated that an otherwise-perfected security interest would expire a year after the transfer of collateral to a new debtor located in a different jurisdiction. FNB argued that (1) the statute did not apply, because the removal of the collateral took place after the sale of the property, (2) FNB’s Mississippi financing statement gave Phoenix knowledge of the prior security interest, and (3) Phoenix should then not be able to take free of FNB’s security interest. Phoenix replied that the sale of the collateral before removal did not impact the applicability of the transfer statute and that the purchaser-without-value statute did not impose a requirement of buying without knowledge of the security interest.