Request By:
Ms. Betty S. Blackburn
Deputy Clerk
Pike County Court Clerk's Office
Courthouse
Pikeville, Kentucky 41501
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
On behalf of your county clerk, Mr. John Paul Blair, you are requesting our opinion as to whether or not a particular financing statement filed by parties from Virginia may be properly filed in your office.
It is our opinion that the financing statement may be filed in your office, as well as the Office of Secretary of State, which will be hereinafter analyzed and explained.
The debtor names, as collateral to the secured party, coal mining royalties. That portion of the financing statement reads:
"Any and all coal mining royalties assigned by Debtor to the Secured Party pursuant to that certain Royalty assignment of even date herewith, a copy of which is attached hereto and incorporated by reference herein."
We assume the financing statement left with you for filing is the original and signed by the Debtor and Secured Party.
The essence of the attached "Royalty Assignment" (attached to the financing statement) is that the Debtor assigns any and all coal royalties that he may be entitled to by virture of his ownership of coal mining properties identified in an annexed schedule of coal mining leases marked Exhibit A as security for the repayment of a loan from the Secured Party. The assignment language is that the Debtor, in consideration of the loan described above, "hereby assigns, conveys and grants a security interest to the Bank (Secured Party) in and to all rents, royalties, income and other profits arising from those certain leasing and other arrangements (hereinafter the "Coal Leases" ) regarding the coal properties. The Debtor has the right to collect the royalties and retain same. The Secured Party, however, at any time may demand and sue for all rents, royalties, under the coal leases and apply the same to the loan debt, or the coal lessees may pay over the royalties directly to the Secured Party until the loan debt is extinguished.
In Kentucky a royalty to be paid the Lessor by the Lessee commonly takes the form of a specified number of cents ( ) per ton on each ton mined and sold to customer or buyer. A royalty can take the form of a sum equal to a named percent (%) of the gross sales price received by the Lessee per ton mined and sold. A royalty can take the form of specified cents ( ) per ton for each and every ton of all merchantable coal mined and/or shipped and sold from the lease boundary. See Kentucky Legal Forms, Banks-Baldwin Company, Volume 4, Chapter 2303.
We assume the subject coal leases involved the basic Kentucky coal royalty principle described above.
Royalty is a matter of contract. It is usually the sum paid the owner by the one who extracts minerals from the land. Gulf Interestate Gas Company v. Garvin, Ky., 303 S.W.2d 260 (1957) 263; and Hughett v. Caldwell County, 313 Ky. 85, 230 S.W.2d 92 (1950). Royalties contracted to be paid the lessor for the use of coal property are regarded in this state as rents. Saylor v. Howard, 229 Ky. 826, 18 S.W.2d 279 (1929). Moreover, the courts have recognized a contractual lien applied to coal royalties. National Bank of Kentucky v. Kentucky River Coal Corp., 230 Ky. 683, 20 S.W.2d 724 (1929); and North Star Company v. Howard, Ky., 341 S.W.2d 251 (1960).
The subject financing statement appears to be sufficient. It is signed by both the Debtor and the Secured Party, with the mailing addresses of both being given. It contains a specific statement indicating that coal mining royalties, as described in an attached copy of the "Royalty Assignment", is the collateral for the loan. See KRS 355.9-402.
Since coal royalties are rentals or personal property, the naming of such royalties as collateral in the financing statement appears proper. See KRS 355.9-102(1)(a). Since the security interest was created in personal property, it is governed by the Uniform Commercial Code. In Re Leckie Freeburn Coal Company (U.S.C.A. -6, 1969) 405 F.2d 1043, 1046. Thus in order to perfect such a security interest, the UCC requires the filing of a financial statement pursuant to KRS 355.9-401 to 406. See KRS 355.9-302.
Thus the filing of the subject instruments in the Deed Book system of your office would not provide constructive notice to those searching the records for a financing statement. See In Re Leckie Freeburn Coal Company, above.
We have just learned that the financing statement in question has been filed with the Secretary of State of Kentucky, under the conditions outlined in KRS 355.9-401(1)(c). That subsection provides that where the debtor is a nonresident of Kentucky but has a principal place of business in Kentucky, the financing statement must be filed in the office of the county clerk in the county where the nonresident has a principal place of business. Where the nonresident debtor has no principal place of business in Kentucky, then the financing statement must be filed in the Office of the Secretary of State of Kentucky.
The legal counsel for the Secured Party has informed us that the Debtor, Dale Murray, is one of the general partners operating a Clintwood Energy Company, a Kentucky General Partnership. The General Partnership, they say, has filed a certificate of doing business under an assumed name in Pike County, Kentucky, pursuant to KRS 365.015. They say that Pike County is its only place of business.
Under these circumstances, the Secured Party wishes to file the financing statement in the Pike County Clerk's Office, as well as with the Kentucky Secretary of State, since one of the two offices will be considered the proper site of filing; and it might be ruled by the courts that the debtor has a principal place of business in Pike County.
Under the above circumstances it is our opinion that the transaction may be filed as a financing statement, and that it may be filed in the Pike County Clerk's Office, as well. Although Kentucky does not provide for double filing, under this rather complex situation, it is proper to file in the Clerk's Office of Pike County. Later, should the occasion arise, the courts could determine which was the correct filing place. We do not believe that KRS Chapter 355 requires a secured party, in suggesting a filing site, to engage in a statutory roulette game.