Barnes v. Turner

When payment on a secured transaction is to be made over more that five years, the lawyer handling the transaction has some duty regarding renewal of the UCC financing statements.

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

The issue in this legal malpractice case is what duty attorney David Turner, Jr. owed his client, William Barnes, Jr., with respect to maintaining Barnes’s security interest that lapsed. The Court of Appeals held that Turner’s only duty was to inform Barnes that his security interest required renewal in five years.1 Because under that view the statute of limitations expired before Barnes filed his malpractice action, the Court of Appeals affirmed the trial court’s decision to grant Turner’s motion to dismiss. We conclude, however, that by failing to inform Barnes of the renewal requirement, Turner undertook a duty to renew the security interest himself. The statute of limitations has not expired for an alleged breach of that duty, and therefore we reverse. On October 1, 1996, Barnes sold his company, William Barnes’ Quality Auto Parts, Inc., to James and Rhonda Lipp for $220,000. The Lipps paid $40,000 at the closing and executed a ten-year promissory note in favor of Barnes for the $180,000 balance. The note was secured by a blanket lien on the Lipps’s assets. On October 30, 1996, Turner perfected Barnes’s security interest by filing UCC financing statements. Turner did not, however, inform Barnes that under OCGA § 11-9-515, financing statements are only effective for five years, although their renewal for another five years is expressly provided for in that statute. The renewal is effected by filing continuation statements no earlier than six months before the end of the initial period.2 No renewal statements were filed, and on October 30, 2001, the original statements lapsed.

Unknown to Barnes, the Lipps had pledged the same collateral to F&M Bank and Trust Company and to Mid-State Automotive Distributors on December 28, 1998 and January 29, 2001, respectively. Both of these companies filed UCC financing statements, which put them in a senior position to Barnes when his financing statements lapsed. Barnes is still owed more than $142,792.09 under the promissory note, and James Lipp is now in Chapter 7 bankruptcy.

Barnes v. Turner

When payment on a secured transaction is to be made over more that five years, the lawyer handling the transaction has some duty regarding renewal of the UCC financing statements.

Share with Email

Thank you for sharing!

Trending Stories

More From ALM

Subscribe to Daily Report