## Facts

- Hilyard Drilling Co., Inc., an oil-and-gas drilling services company, filed for Chapter 11 relief on January 25, 1985.
- In April 1979, Hilyard granted National Bank of Commerce of El Dorado (NBC) a security interest in all existing and future accounts receivable and proceeds; NBC perfected by filing financing statements in April 1979.
- Under Arkansas’s U.C.C., NBC’s 1979 financing statement was effective for five years and would expire in April 1984 unless continued by a statutorily compliant continuation statement filed within the six-month pre-expiration window.
- In 1983, Worthen Bank & Trust Co., N.A. (Worthen) agreed to lend to Hilyard and take a lien on the same accounts receivable; in a letter, Worthen acknowledged NBC’s first-lien position and stated Worthen would take a second lien.
- Worthen obtained and perfected its security interest in June 1983 by filing financing statements that did not state subordination.
- In July 1983, NBC filed a new financing statement covering the accounts receivable but did not file a continuation statement for the 1979 filing and did not reference the original filing or file number.
- By the time of bankruptcy, Hilyard owed both lenders amounts exceeding the accounts receivable’s value, making lien priority dispositive.
- Worthen sought a determination of lien priority in the bankruptcy court; the bankruptcy court ruled Worthen had first priority, the district court affirmed, and NBC appealed.

## Issues

1. Whether NBC’s failure to file a statutorily compliant continuation statement could be excused as harmless error so that NBC’s 1979 perfection and priority continued.
2. Whether “continuous perfection” can be maintained by filing successive financing statements that do not comply with continuation-statement requirements.
3. Whether Worthen’s letter acknowledging NBC’s first lien bound Worthen to remain junior by estoppel or as a subordination agreement.

## Decision

- The Eighth Circuit affirmed the district court and the bankruptcy court.
- NBC’s July 1983 filing was not a valid continuation statement because it was not filed within the statutory continuation window and did not identify the original 1979 financing statement by file number or indicate it was a continuation.
- NBC’s perfection under the 1979 filing lapsed upon expiration in April 1984, and the lapse was not treated as harmless.
- Article 9 does not permit a secured party to preserve continuous perfection and priority merely by filing successive, unrelated financing statements.
- Worthen’s acknowledgment of NBC’s then-first-lien status did not constitute an enforceable subordination agreement that would override statutory priority after NBC’s lapse.
- Because Worthen’s 1983 financing statements remained effective when Hilyard filed bankruptcy, Worthen held the senior perfected security interest in the accounts receivable at that time.

## Legal Principles

- A financing statement is effective for the statutory period and lapses unless continued by a timely continuation statement that satisfies formal identification requirements.
- A later-filed financing statement that does not identify the earlier filing and does not state it is filed to continue that earlier filing is not a continuation statement and does not preserve the earlier filing’s priority date.
- Continuous perfection beyond the original effectiveness period is maintained through compliance with continuation-statement requirements, not through overlapping or repeated new filings.
- Informal acknowledgments of lien priority do not displace Article 9’s priority rules without a valid, enforceable subordination agreement.

## Conclusion

The court held that NBC lost first priority when it failed to file a statutorily compliant continuation statement for its original financing statement, and that neither a later, standalone financing statement nor Worthen’s earlier acknowledgment of NBC’s then-senior lien altered the Article 9 result that Worthen’s still-effective perfected lien had priority at bankruptcy.


Worthen Bank & Tr. Co., N.A. v. Hilyard Drilling Co. (In re Hilyard Drilling Co.), 840 F.2d 596 (8th Cir. 1988)