Commingled Goods and Prompt Pay Acts – Weekly Review

News & Views from the Credit World

Let them Eat Cake!

There are many straightforward sections of Article 9 of the Uniform Commercial Code; unfortunately there are also some gray areas. One of the more challenging sections is the topic of commingled goods. A good becomes “commingled” when it loses its individual identity.

In this article, from The National Law Review, the author, George R. Hirsch, provides a great (and tasty) example of commingled goods:

“A simple example of commingled goods … is cakes in a bakery. One vendor supplies eggs, another, flour. Once the eggs are mixed with the flour to make the cakes, both the eggs and flour lose their separate identities and become “commingled goods.” It is not hard to accept that the security interests of the egg supplier and the flour supplier rank equally in proportion to the value of their goods at the time they became commingled.”

The author also discusses the complex nature of securing commingled goods and doesn’t appear to be strongly in favor of UCC filings in these circumstances. Although perfecting a security interest in commingled goods can be compli

cated, I would still encourage suppliers to utilize a UCC filing – a UCC can protect you in the event of your customer’s default and in the end, it’s much better to be secured than unsecured.

Despite not agreeing 100% with the author, I do agree on one point: credit professionals cannot and should not limit themselves to one form of security. Fortunately, there are other risk mitigation tools available and it would be wise of all credit professionals to explore their options.

Low Gas Prices! Bring on the Liens?

Gas prices are low! As consumers we are thrilled to see a reduction in prices at the pump, but if you are a lender or equipment lessor to drilling activity or areas of oil and gas development, you may not be sharing in our enthusiasm. In a recent article from Brent Cohen of Lewis Roca Rothgerber, Mr. Cohen alerts lessors & lenders to the imminent “oil & gas bankruptcies” and the statutory liens that will inevitably be filed if crude prices remain low.

The statutory, sometimes referred to as involuntary, liens the author discusses are mechanic’s liens, oil/gas/mineral liens and possessory liens. Mechanic’s liens are the liens you are probably most familiar with – they are a lien on real property. Mineral liens (aka oil liens, gas liens) are quite similar to mechanics liens, with added focus to the idiosyncrasies of oil/gas development. In fact, in some states, mechanic’s liens cover oil/gas development, which makes the separate mineral lien unnecessary. Possessory liens, according to the author, are “limited to personal property and arise where labor, service or storage has been provided.”

As you know, each state has its own set of guidelines (aka statute) with regard to liens on real property, and it’s important to execute those liens in a timely fashion. The author provides a handy table referencing statue for some of the oil & gas producing states and I encourage you to take a look – just remember, it’s simply a guide and not a definitive list.

Prompt Pay Acts of Victory

The Prompt Pay Act in Nebraska was amended in 2014, and Craig Martin of the Construction Contractor Advisor recently posted a great recap on the changes. A few of the highlights the author mentions are that attorney’s fees may be recovered, there is a 10% limit on retainage and the act only applies to commercial construction.

In other Prompt Pay Act news, a subcontractor supplying to a federal project in Tennessee was protected under Tennessee’s Prompt Pay Act.

“In Eagle Supply and Manufacturing Co. v. Bechtel Jacobs Co., LLC., a contractor sought dismissal of a subcontractor’s breach of contract claim for nonpayment by alleging that (1) the Tennessee Prompt Pay Act (the “Act”) did not apply to a subcontract on a federal project, and (2) even if the Act applied, the terms of the subcontract barred relief.”

Much to the dismay of the general contractor, the court held that because the contract was between two private entities (the contract did not mention the governmental entity) federal statute did not apply. The court also held that the subcontractor did not waive rights under the Prompt Pay Act, even though the contract specifically notes the waiver, because in Tennessee the Prompt Pay Act trumps the contract.

An important lesson here, though there are several, is to carefully review contracts AND statute.

From NCS

• Understanding Blanket Filings and Purchase Money Security Interest (PMSI) Filings just got a little easier. Check out this week’s blog post to learn more about the difference between Blanket & PMSI filings, which filing applies to you and the applicable filing deadlines.

• Don’t forget to join us Tuesday, February 17, 2015 for our free webinar “Protect and Collection: The Basics of the Lien and Bond Claim Process”