## Facts

- Aero Standard Tooling, Inc. (AST) granted Gomer and Herb Jones a security interest in AST’s equipment.
- In December 1989, the Joneses filed a financing statement covering the equipment, perfecting their security interest.
- The Joneses did not file a continuation statement by December 1994, and their filed financing statement lapsed.
- In March 1992, National Bank of Andover (National Bank) filed its own financing statement covering AST’s equipment.
- In December 1996, National Bank filed a continuation statement, maintaining continuous perfection of its security interest through December 2001.
- National Bank’s security interest was later assigned to Ed Petty Construction and Leasing, Inc. (Petty).
- In February 1997, Herb Jones took possession of AST’s property.
- After some of the property was sold, a dispute arose over the competing claims to the equipment (and/or sale proceeds).
- The trial court determined that Herb Jones’ interest was junior to Petty’s perfected interest.
- Herb Jones appealed, arguing that his security interest should be treated as perfected by possession and should take priority over Petty.

## Issues

1. Whether the Joneses’ failure to file a continuation statement caused their perfected security interest to lapse, making their interest junior to National Bank’s (and Petty’s) continuously perfected security interest.
2. Whether Herb Jones’ possession of the collateral in 1997 perfected his interest in a way that gave him priority over Petty’s earlier perfected interest.
3. Whether Petty, as assignee of National Bank’s security interest, held the same priority as National Bank.

## Decision

- The Kansas Court of Appeals affirmed the trial court.
- The court held that the Joneses’ perfection by filing lapsed when they failed to file a continuation statement.
- The court rejected Herb Jones’ argument that later possession gave him priority over Petty’s continuously perfected interest.
- The court treated Petty, as assignee, as holding the benefit and priority of National Bank’s perfected security interest.

## Legal Principles

- A financing statement perfecting a security interest is effective only for the statutory period; if no continuation statement is timely filed, the financing statement lapses and the security interest becomes unperfected.
- When a filed financing statement lapses, the secured party loses the protection of continuous perfection as against competing secured creditors who perfected and maintained perfection.
- Priority among competing security interests in the same collateral is generally determined by the “first to file or perfect” rule; a later act of perfection by another claimant does not defeat an earlier, continuously perfected interest.
- Perfection by possession (when available) is effective only while the secured party has possession and does not retroactively restore a lapsed filing’s earlier priority date.
- An assignee of a perfected security interest generally succeeds to the assignor’s rights, including the assignor’s priority position.

## Conclusion

Because the Joneses allowed their financing statement to lapse in 1994, their security interest was no longer perfected when the priority dispute ripened, while National Bank’s interest remained continuously perfected through timely continuation and was later assigned to Petty. Herb Jones’ later possession did not displace Petty’s earlier, continuously perfected priority, so the trial court correctly treated Jones’ claim as junior and the Court of Appeals affirmed.


National Bank of Andover, N.A. v. Aero Standard Tooling, Inc., 49 P.3d 547 (2002)