STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

October 26, 1970

A. William Spiry
States Attorney, Marshall County
Britton, South Dakota 57430

OFFICIAL OPINION NO. 70-45

Uniform Commercial Code Financing statements.

Dear Mr. Spiry:

You have requested my official opinion in regard to the following factual situation:

In conformity with SDCL 57-38, and the requirements of SDCL 57-37-45.1, certain financing statements which might create a lien or a security interest against real estate, clearly marked "This Instrument is not to be Recorded" have been filed with the Register of Deeds.

At a time after such filing of such financing statement, the secured party has requested the Register of Deeds to record such instrument, in pursuance to further requirements of SDCL 57-37-45.1, so that such financing statement will lawfully create a lien or security interest in real property, and constructive notice of such claim be given to the public by such recordation in the Register of Deeds office.

In this factual situation, you have submitted this question:

Should the Register of Deeds record this financing statement as an instrument affecting real property without the written approval of such recordation by all of the signers on such financing statement?

It is my opinion that the answer to this question is NO.

The Uniform Commercial Code is relatively new in the laws of South Dakota, and for that matter many problems presented by it remain unanswered even with its wide acceptance in our country. Proper filing, and recording when required, is a requisite to perfecting a security interest under the Uniform Commercial Code. (See Re Babcock Box Co. (D.C. Mass 1961) 200 Fed Supp 80; Re Lux's Superett, Inc. (D.C. pa 1962) 206 Fed Supp 368, and In Re Park Corrugated Box Corp (D.C. N.J. 1966) 246 Fed Supp 56).

Likewise, it is my opinion that an analogy may be drawn between Mach v. Blanchard, 15 S.D. 432, 90 NW 1042, 58 LRA 811, 91 Am.St. Rep 698, and Stone v. Franch, 37 Kan. 145, 14 P 530, 1 Am.St. Rep 237 (which was discussed and distinguished in Bliss v. Tidrick, 25 S.D. 533, 127 NW 852, 24 Ann. Cas. 671, 32 LRA (NS) 854) dealing with the conveyance of realty, that the mere filing or recordation of a financing statement, of itself creates no lien or security interest upon personal or real property, nor could such filing or recording "breathe any life into" a void security transaction. However, the Uniform Commercial Code recognizes that both the security holder and the debtor may assign their interests in such secured transactions. (See SDCL 57-35, 57-37-67, 57-37-58, 57-38-26 and other related sections.)

It is my opinion that whether or not a secured transaction is to create a lien or a security interest upon real property must depend upon the mutual agreements between the secured party and his debtor, and such lien or security interest cannot be created by the unilateral desire of such secured party. When such financing statement was originally filed it must be presumed that the parties thereto had agreed that such security interest would not attach to or affect land. This presumption arises from the endorsement upon such financing statement of the statement, "This instrument is not to be recorded."

To permit the holder of the security interest, the secured party, thereafter, by unilateral direction, to direct the Register of Deeds to in effect delete this endorsed statement, "This instrument is not to be recorded," and proceed thereupon to record such financing statement as a lien or security interest upon real property, without the consent thereto from the original debtor, or his assignee, may, in fact have no effect upon the original agreement of the parties. However, there can be no question that such would operate as a "cloud on title" on the described real estate. Such also could create uncertainties as to the title of such real estate as to all who have constructive notice of such claim of a lien or security interest by virtue of such recording, or those who receive actual notice of such claim through inspection of the records in the office of the Register of Deeds.

In a spirit of fair play between parties, and an appreciation as to its effect upon title to real property, it is my opinion that the removal of the endorsement "This instrument is not to be recorded" from a filed financing statement, upon the unilateral request of the secured party together with his request that such instrument be recorded as a lien or security interest upon real property is improper. The Register of Deeds should not record such instrument.

However, I perhaps should add, if the request for the recordation comes from the debtor himself, or his assignee, or if accompanying such request of the secured party is a statement of such debtor (or his assignee) to the effect that he has knowledge of such request to record, and consents thereto, then, of course, the Register of Deeds should follow such directions, record such financing statement so as to create a lien or security interest upon real property.

Respectfully submitted,

Gordon Mydland
Attorney General