Service Area: UCC Services

Compliance with UCC Article 9-503 and Alternative “A”

Posted on February 19, 2018 by wpengine - UCC Financing Statements

Filing a UCC on an Individual? Make Sure You Comply with UCC Article 9-503

To Determine Whether One Creditor Correctly Identified the Individual on the UCC Filing, a Bankruptcy Court Had to Venture into Uncharted UCC Article 9 Territory

Filing a UCC on an individual? It is critical that you comply with Article § 9-503(a): The Financing Statement must list the debtor’s name as it appears on the debtor’s unexpired driver’s license.

Let me repeat: The Financing Statement must list the debtor’s name as it appears on the debtor’s unexpired driver’s license.

But what happens if the printed name on the driver’s license is different than the individual’s signature on the driver’s license? Technically, both names (the printed & signed) appear on the license – which is correct?

Until now, no one has questioned whether the name shown in the signature or the printed name on the driver’s license should appear on the Financing Statement. This is uncharted territory under UCC Article 9.

Of course, we’ve encountered cases where the name on the Financing Statement and driver’s license don’t match, but these differences are typically due to spelling errors. Errors such as a misspelled last name: the name on the driver’s license is ”Susan Walker” vs. the name on the Financing Statement is ”Susan Wakler”. We’ve even encountered a case where the name on the driver’s license was misspelled, and the courts determined the misspelling should have been reflected on the Financing Statement.

But an argument that compliance with Article § 9-503 is achieved when using the driver’s license signature vs. the printed name? Definitely a new layer of complexity.

In a recent bankruptcy case, one Georgia court determined the printed name on the unexpired driver’s license is the name that should appear on the UCC Financing Statement, leaving one creditor’s security interest unperfected.

The Case | Bank Lends Money, Debtor Files for Bankruptcy Protection

In 2015, Kenneth R. Pierce (Pierce) obtained an $18,000 loan from Farm Bureau Bank (Bank) and the proceeds of the loan were used to purchase farming equipment, a fertilizer spreader. Bank and Pierce executed a security agreement and Bank filed a UCC to perfect its security interest.

In 2017, Pierce filed for Chapter 12 bankruptcy protection. Subsequently, Bank timely filed a proof of claim for the balance owed of $14,459.81 and attached a copy of their UCC-1 to the proof of claim.

On the UCC filing, Bank identified Pierce as “Kenneth Pierce;” however, Pierce’s name on his unexpired driver’s license was “Kenneth Ray Pierce.” Pierce filed an objection with the Bankruptcy Court, claiming Bank’s security interest was unperfected, because Bank incorrectly identified Pierce on the UCC filing.

Quick Refresher on “Alternative A”

Before we get into the Court’s review of the case, let’s do a quick review of Alternative A under the 2010 UCC Amendments.

In compliance with § 9-503(a), when the debtor is a registered organization, creditors should rely on the information found on the public organic record.

If the debtor is an individual, creditors must first look to the state’s legislation. With the 2010 Amendments, each state had to decide whether they would implement “Alternative A” or “Alternative B.”

Alternative A: if the debtor holds an unexpired driver’s license, the Financing Statement must list the debtor’s name as it appears on the unexpired driver’s license. (If the debtor does not have a driver’s license, the Financing Statement should list the “individual name” of the debtor or the debtor’s surname and first personal name.)

Alternative B: the debtor’s driver’s license name, the debtor’s actual name or the debtor’s surname and first personal name may be used on the Financing Statement.

The Bankruptcy Court’s Review | Technically Two Names Appear on the Individual’s Driver’s License

Technically two names appear on Pierce’s driver’s license, at least that is Bank’s primary argument. See, the printed name on his driver’s license is “Kenneth Ray Pierce” though Pierce’s signature reads “Kenneth Pierce.” Bank argued that Article § 9-503(a) doesn’t specify whether the identifying name must be the name that is typed on the driver’s license.

“But as Farm Bureau Bank points out, there are two names “indicated on the driver’s license”: “Kenneth Ray Pierce” (typed) and “Kenneth Pierce” (signed). Farm Bureau Bank argues that O.C.G.A. § 11-9-503(a)(4) is not limited to the name typed on the driver’s license, but rather that it includes the name signed by the Debtor, and thus its Financing Statement does provide the (signed) name of the Debtor.”

Georgia is an Alternative A state, and in the plain text of the law, Bank isn’t necessarily wrong; it does not specify whether the printed name or signed name is the name to be listed on the Financing Statement:

9-503. NAME OF DEBTOR AND SECURED PARTY.

(a) [Sufficiency of debtor’s name.]

[Alternative A]

(4) subject to subsection (g), if the debtor is an individual to whom this State has issued a [driver’s license] that has not expired, only if the financing statement provides the name of the individual which is indicated on the [driver’s license];

(5) if the debtor is an individual to whom paragraph (4) does not apply, only if the financing statement provides the individual name of the debtor or the surname and first personal name of the debtor;

Thus, it becomes the Court’s duty to determine whether the error on the Financing Statement is seriously misleading, or if Bank’s security interest is perfected because it substantially complied with the law.

The Bankruptcy Court’s Review | Webster’s Dictionary, Case Law & Basic Compliance with the Law

Courts weigh a variety of factors when deciding a case, often relying on previous legal decisions for guidance, the “plain language of the law” and even Webster’s dictionary.

The Court thought perhaps the answer would lie within the definition of “indicate” as it appears in “indicated on the driver’s license.”

“Turning to Webster’s Third New International Dictionary 1150 (1981) the following are among the definitions provided for the word “indicate”: “to point out or point to or toward with more or less exactness,” to “show or make known with a fair degree of certainty,” and to “reveal in a fairly clear way.” These definitions do not help the Court determine which of two names is “indicated” on the Debtor’s driver’s license. Indeed, the presence of two different names on the driver’s license is precisely the opposite of exactness, certainty, and clarity.”

I now understand the saying “clear as mud.”

The Court also reviewed various Georgia cases. Unfortunately, most of the cases did not address the exact issue in this case. The Court then turned to other jurisdictions’ case law, and one Nebraska bankruptcy case shed some light, though the case was decided prior to the 2010 Amendments and does not wholly apply to the case at hand.

“In Genoa Nat’l Bank v. Southwest Implement, Inc. (In re Borden), the debtor was identified by his legal name “Michael Ray Borden” or by “Michael R. Borden” on his driver’s license and on other legal documents. 353 B.R. 886, 887-88 (Bankr. D. Neb. 2006). However, the debtor often signed legal documents by his nickname, “Mike Borden.” Id. The court held that financing statements identifying the debtor as “Mike Borden” were seriously misleading. Id. at 892. In re Borden suggests that the name typed on legal documents trumps the name signed by the debtor.”

OK, What about Standard Search Logic?

The second argument Bank lodged was that the UCC would appear in a search based on Georgia’s standard search logic. But, under that argument, the search would have been done using Pierce’s name on his driver’s license – “Kenneth Ray Pierce.” And, a search for “Kenneth Ray Pierce” would not have uncovered the filing for “Kenneth Pierce.”

As a side note, a search of Georgia’s UCC Index can be done with a partial name. Yes, Bank should have searched by the individual’s name as it appears on the driver’s license, however, a partial search of “Pierce, KE” revealed the UCC:

Seriously Misleading, Unsecured Status

On its Financing Statement, Bank failed to identify its debtor in compliance with § 9-503. Failing to correctly identify its debtor meant the UCC filing would not be uncovered in a search. The Court declared Bank’s UCC as seriously misleading, bumping Bank to unsecured creditor status.

Always Obtain a Copy of the Driver’s License

At NCS, our UCC experts continually stress the importance of the driver’s license, yet nearly 30% of creditors fail to comply with Article 9 requirements. I know, you are tasked with a lot and it’s easy to overlook or neglect the driver’s license. But the name on the driver’s license, the printed name, is vital for a perfected security interest.

This case is another example of a creditor losing its secured status because of an avoidable error. Don’t jeopardize your perfected security interest; obtain a copy of the unexpired driver’s license as a part of your credit application process. Every. Time.

Secured Creditor Bumped to Unsecured Status

Posted on February 16, 2018 by wpengine - In Other Commercial Credit News

Secured Creditor Slips to Unsecured Creditor Status & Loses Over $50,000

Late last fall, we reviewed a pivotal case in Wisconsin. A creditor’s security interest was unperfected because the debtor’s name on the UCC Financing Statement included (unintentionally) an extra space.

Double Bubble, Ltd. (Double Bubble) filed a UCC to secure credit extended to ISC, Inc. (ISC). On the Financing Statement, Bubble identified ISC as “ISC, Inc .” At first glance, it appears correct, but close review reveals there is an extra space between the “c” and the “.” in “Inc.”

According to the court opinion, the receiver assigned to ISC, Inc. identified Double Bubble as an unsecured creditor because Double Bubble’s UCC did not appear in the receiver’s UCC search. The receiver searched for filings by “ISC, Inc.” which is ISC’s name as it appears on the public organic record.

Turns Out, a Space is Worth 33% of $169,437.72

At the time of the court’s decision, the differences in the recovery percentages for secured vs. unsecured creditors were unknown. However, a recent article, Wisconsin Federal Court Holds That Creditor Who Inadvertently Included Extra Space in Debtor’s Name in UCC Financing Statement Was Unsecured, is reporting that secured creditors are to recover 100% of their claims, while unsecured creditors are to recover only 66%.

For the creditor Double Bubble, this means recovery of approximately $113,000 vs. the balance owed of $169,437.72.

“[c]reditor was deemed an unsecured creditor who could only be paid 66% of its $169,437.72 claim under the receiver’s plan. The creditor filed an objection, arguing that it properly perfected its security interest and, as a secured creditor, was entitled to 100% of its claim under the plan. The Court denied the creditor’s request.”

Strict Compliance with Article 9

Strict compliance with Article 9 is imperative. Article 9-503(1) clearly states the debtor’s name must be identified as it appears on the public organic record.

A financing statement sufficiently provides the name of the debtor:

(1)… if the debtor is a registered organization, or the collateral is held in a trust that is a registered organization, only if the financing statement provides the name that is stated to be the registered organization’s name on the public organic record of most recently filed with or issued or enacted by the registered organization’s jurisdiction of organization which purports to state, amend, or restate the registered organization’s name;

As a best practice, follow the peer review and/or buddy system. In other words, have a colleague carefully review the prepared filing prior to recording and check for indexing errors once a filing has been recorded.

NCS can help – contact us today!

The Difference Between Consignment & Bailment

Posted on January 22, 2018 by wpengine - UCC Financing Statements

Is it a Consignment or is it a Bailment?

Consignment is often confused with Bailment and vice versa. While they are different, they do have similar characteristics. For example, under both consignment and bailment, the ultimate ownership of the goods remains with the party that supplies the goods (consignor/bailor).

In this post, we will take a high-level look at consignment vs. bailment.

Consignment Refresher

We’ve discussed Consignment filings before, but here’s a quick 101:

“A consignment is when the owner (the consignor) retains title to goods delivered to the consignee. The consignee will then hold the goods for sale or use. When the goods are sold, the consignor’s rights attach to the proceeds. If the consignee is not able to sell the goods they can be returned to the consignor without any obligation. The advantage of a consignment sale is that it minimizes the risk of non-payment and can be an option when doing business with a poor credit risk.” – quote from blog post, Protect Your Consignment Sales

What Makes a Bailment Different from Consignment?

Under a bailment agreement, the bailor (owner), delivers its goods to another party (the bailee), “for some express purpose” and once the bailee has fulfilled this purpose, the goods are returned to the bailor.

In other words, a bailment is a transfer of physical possession of the goods, not a transfer of title or ownership of the goods.

“Express Purpose” Could Be to Improve Upon the Original Goods

Here’s an example:

My fictional company, Fan Co., manufactures and sells industrial-sized smart fans.

Fan Co. manufactures all the smart fan parts; however, Fan Co. doesn’t have the equipment needed to assemble and program the motherboards that make their fans “smart.”

So, Fan Co. manufactures all the pieces/parts for the motherboards and hires a third party to assemble and program the motherboards.

Under an agreement between Fan Co. and the third party, the third party will assemble and program the motherboards and send the completed motherboards back to Fan Co.

Fan Co. retains ownership of the pieces/parts, even when they are in the third party’s possession.

Chart it Out

Still a little fuzzy on the difference between consignment & bailment? Maybe this quick chart will help.

Best Practice: Hope for Bailment & Prepare for Consignment

Technically, because a bailment is not a sale of goods, it tends to fall under Article 2 of the UCC, not Article 9.

However, releasing goods to another party, whether the intention is for the goods to be returned or sold, is a risk.

What if the third party files for bankruptcy protection, while in possession of your goods? Even when those goods are slated to be returned to you, if you failed to file a UCC under Article 9, your right to repossess those goods may be in jeopardy. Furthermore, if another creditor filed a UCC on that same entity, their security interest would take priority.

Before releasing goods to a third party, ensure you have a signed security agreement and file a UCC-1.

Properly Perfected UCC and Repossession

Posted on December 18, 2017 by wpengine - UCC Financing Statements

Can a Properly Perfected UCC Really Give Me the Right to Repossess?

Yes, a properly perfected security interest and proof of debtor default may afford you the right to repossess the collateral. Today’s post reviews a recent case that demonstrates the power of a properly perfected UCC.

In CNH INDUSTRIAL CAPITAL, AMERICA, LLC v. T & P FARMS, LLC, Dist. Court, ND Mississippi 2017, the court granted the Secured Party the right to repossess its equipment because it had 1.) proven the debtor defaulted on the contract and 2.) properly perfected a security interest through UCC Financing Statements.

Background: The Contract, The UCC-1s & The Replevin

In 2015, the debtor, T & P Farms, LLC (T & P) purchased over $1M in farming equipment from Medlin Equipment Company of Mississippi County (Medlin).

According to the court opinion, there were 4 pieces of equipment sold, and each sale was “…evidenced by a Retail Installment Sale Contract and Security Agreement.” (3 of the 4 sales were addressed in the replevin action.)

Included in the contract, aside from the security language and terms of the sale, was a clause regarding debtor default: “the seller has the right to ‘take possession of all Collateral, without notice or hearing…’” and Medlin assigned its interest in the equipment to CNH Industrial Capital America, LLC (CNH). Subsequently, a PMSI filing was properly perfected, by CNH, for each sale/contract.

By the end of 2016, the debtor had stopped making the agreed upon monthly payments and in May 2017, CNH filed a replevin action.

What is Replevin Action?

Wex Legal Dictionary defines replevin as the action used by creditors to repossess collateral from debtors in default. “A writ authorizing the retaking of property by its rightful owner (i.e., the remedy sought by replevin actions).”

The rules of replevin may vary by jurisdiction and this case looks to Mississippi statute (Section 11-37-101 of the Mississippi Code). According to the court opinion, a replevin action requires a declaration under oath to include:

(a) A description of any personal property;

(b) The value thereof, giving the value of each separate article and the value of the total of all articles;

(c) The plaintiff is entitled to the immediate possession thereof, setting forth all facts and circumstances upon which the plaintiff relies for his claim, and exhibiting all contracts and documents evidencing his claim;

(d) That the property is in the possession of the defendant; and

(e) That the defendant wrongfully took and detains or wrongfully detains the same

The Secured Party Prevailed

When a replevin action is filed, the party filing the action needs to prove their right to repossess the collateral. In this case, the Secured Party filed the action, then the Secured Party proved its properly perfected security interest as well as the default of its debtor.

“A plaintiff in a replevin action establishes the right to immediate possession by demonstrating a default on a purchase contract and a perfected security interest in the collateral.”

The debtor is afforded an opportunity to defend against the repossession. The debtor asked the court to consider equitable defense (a defense based on fairness, not law), based on the debtor’s need for the equipment to maintain his business and support his family. The debtor further added he should not have to pay for the equipment, because the equipment was faulty. Unfortunately, the debtor’s defense wasn’t persuasive enough.

“While a rule of equity may play some role in this determination, such as where a party claims an equitable lien in the subject of the action, T & P has not cited, and this Court has not found, any authority which supports the proposition that a possessory interest in collateral may be equitably created by either the condition of collateral unrelated to the existence of a default or the need for continued possession.”

CNH properly perfected its security interest and successfully established the debtor’s default, therefore, the court granted CNH the right to repossess the equipment.

UCC for the win!

UCC Filings and Defaults & Remedies

Posted on December 4, 2017 by wpengine - UCC Financing Statements

UCC Filings Part 5 | Defaults & Remedies

Our final section in this series covers Default & Remedies under Article 9.

Review Part 1 | Introduction & Scope of Article 9, Part 2 | Conveying a Security Interest and Perfection & Priority under Article 9, Part 3 | Perfection of a Security Interest and Part 4 | Priority of a Security Interest

What is Default?

Your debtor defaults, or is in default, when they fail to fulfill the obligations identified in the Security Agreement. Default includes bankruptcy or insolvency of your debtor, debtor’s failure to pay debts when due, removal of collateral and failure to insure collateral.

What to do When Your Debtor Defaults

Option 1: Repossession

With the filing of a PMSI, you secure the right to peacefully repossess your goods, if so desired. The Secured Party can either repossess the goods on their own, or seek a judicial order.

9-609. SECURED PARTY’S RIGHT TO TAKE POSSESSION AFTER DEFAULT.

(a) [Possession; rendering equipment unusable; disposition on debtor’s premises.] After default, a secured party: (1) may take possession of the collateral; and (2) without removal, may render equipment unusable and dispose of collateral on a debtor’s premises under Section 9-610. (b) [Judicial and nonjudicial process.] A secured party may proceed under subsection (a): (1) pursuant to judicial process; or (2) without judicial process, if it proceeds without breach of the peace.

Option 2: Foreclosure

Under 9-610, the Secured Party may sell (or foreclose upon) the collateral. A foreclosure sale may be private or public, the Secured Party must ensure the sale is commercially reasonable, the Secured Party must provide the debtor with reasonable notice of the sale and the Secured Party must notify other secured parties with an interest in the collateral (for non-consumer transactions).

The proceeds from a foreclosure sale are applied in the following order: 1. Secured Party’s repossession and foreclosure sale expenses, 2. debt owed to the Secured Party, 3. debts owed to inferior secured parties, 4. remaining proceeds go to the debtor.

Debtor’s Remedies

The debtor can redeem his/her interest in collateral at any time before the debt is satisfied by strict foreclosure, the collateral is sold, or a binding contract for the sale of the collateral is entered. The debtor must pay full amount of the secured debt and any expenses the Secured Party reasonably incurred in dealing with the collateral.

Prior to disposition of the collateral, a court may order or restrain disposition if the Secured Party fails to comply with the UCC provisions governing default. After disposition, the Secured Party is liable for any damages resulting from his/her noncompliance with the default provisions.

9-625. REMEDIES FOR SECURED PARTY’S FAILURE TO COMPLY WITH ARTICLE.

(b) [Damages for noncompliance.] Subject to subsections (c), (d), and (f), a person is liable for damages in the amount of any loss caused by a failure to comply with this article. Loss caused by a failure to comply may include loss resulting from the debtor’s inability to obtain, or increased costs of, alternative financing.

If the Secured Party does not comply with the mandatory sale provision relating to consumer goods, the debtor may recover under the code or in conversion.

Key Points for the Secured Party to Remember Upon Debtor’s Default

– The term default is not defined under Article 9; the debtor and Secured Party are left to define events of default within their contract.

– The collateral may be repossessed.

– If desired, the Secured Party has the right to repossess without disturbing the peace. If the Secured Party is unable to peacefully repossess the collateral, legal steps may be necessary including a temporary restraining order or pursuing suit against the debtor.

– If the Secured Party does not want to repossess the collateral, the claim could be placed with an attorney to file suit, which could result in Judgment, allowing the garnishment of accounts and/or asset attachments.

– The disposition of collateral.

– After recovering personal property, exercise reasonable care of the property (i.e. clean & repair the collateral prior to sale).

– Act in a commercially reasonable manner.

– Consider disclaiming all express and implied warranties in the bill of sale delivered to the purchaser of collateral at the foreclosure sale.

– Properly notify all parties of the disposition and allow for sufficient time prior to the disposition.

– Satisfaction of the account.

– If permitted by contract, or applicable law, satisfy all costs and expenses of repossession and sale from the sale proceeds.

– If the sold collateral is consumer goods, provide the debtor and all other obligors with a calculation of any surplus or deficiency and an explanation of how the calculation was made.

– The Secured Party should consider accepting the collateral in full or partial satisfaction of the debt. Adhere to all technical statutory requirements when doing so.

UCCs & Priority of a Security Interest

Posted on November 13, 2017 by wpengine - UCC Financing Statements

UCC Filings Part 4 | Priority of a Security Interest

In part 4 of our secured transaction series, we’ll review Priority under Article 9.

Review Part 1 | Introduction & Scope of Article 9, Part 2 | Conveying a Security Interest and Perfection & Priority under Article 9 and Part 3 | Perfection of a Security Interest

Who Has Priority?

Generally, a creditor’s priority is based on whether the creditor has a perfected security interest, and priority dates from the time of filing or perfection, whichever is first.

If an interest in the same collateral exists, the creditor with the perfected security interest has priority over the creditor with the unperfected security interest. Further, the creditor with the unperfected security interest has priority over general unsecured creditors.

Exceptions to Priority Rules

Buyers of Goods

Ordinary Course of Business: If, in the ordinary course of business, a buyer purchases goods, the goods are free of a security interest (except for farm products).

Consumer Goods: If the buyer purchases consumer goods, the goods are free of a security interest if the buyer had no knowledge of a security interest, if the goods are purchased for value, the goods are primarily for the buyer’s personal use, and if the buyer purchases the goods prior to the filing of the Financing Statement by the Secured Party.

Buyers of Instruments and Chattel Paper

Buyers have priority over non-possessory interest in proceeds of non-inventory collateral if

value has been given to the collateral,
the buyer takes possession of instrument or chattel paper in the ordinary course of business, and
the buyer acts with knowledge of competing security interest.

PMSI: Equipment & Inventory

A perfected PMSI in Equipment or Inventory generally has priority over other security interests.

9-324. PRIORITY OF PURCHASE-MONEY SECURITY INTERESTS.

(a) [General rule: purchase-money priority.]

Except as otherwise provided in subsection (g), a perfected purchase-money security interest in goods other than inventory or livestock has priority over a conflicting security interest in the same goods, and, except as otherwise provided in Section 9-327, a perfected security interest in its identifiable proceeds also has priority, if the purchase-money security interest is perfected when the debtor receives possession of the collateral or within 20 days thereafter.

Ensure the PMSI is Perfected

To perfect a PMSI in Equipment, a Secured Party must have the debtor execute a security agreement containing the appropriate granting and authorization language and file a Financing Statement in the appropriate jurisdiction before or within 20 days after the debtor receives possession of the equipment.

To perfect a PMSI in Inventory, a Secured Party must have the debtor execute a security agreement containing the appropriate granting and authorization language, file a Financing Statement in the appropriate jurisdiction before the debtor receives possession of the inventory and notify existing holders of security interests of record in the same type of collateral that the Secured Party intends to take a PMSI in Inventory within five years before the debtor receives possession of the inventory.

What Happens with Security Interests in Fixtures vs. Real Estate Interests?

When one party has a security interest in real estate and another party has a security interest in a fixture to the real estate, the fixture filing has priority if the Financing Statement was filed before the mortgage is recorded. If the mortgage was recorded prior to the fixture filing, then the mortgage has priority.

UCCs & Perfection of a Security Interest

Posted on October 30, 2017 by wpengine - UCC Financing Statements

UCC Filings Part 3 | Perfection of a Security Interest

Part 3 of our secured transaction series provides an overview of Perfection under Article 9.

Review Part 1 | Introduction & Scope of Article 9 and Part 2 | Conveying a Security Interest under Article 9

What is Perfection of a Security Interest?

Perfection of a security interest is the process where the Secured Party gives notice of the security interest to third parties, which cannot occur prior to attachment.

The Financing Statement

The most common form of perfection is the filing of a Financing Statement. The Financing Statement must include the legal names and principal/headquarters address of the debtor and the Secured Party, identification of the collateral and the state organization number.

Generally, Financing Statements can be used for consumer goods, equipment, farm products, inventory, fixtures, general intangibles, accounts, and chattel paper.

A Financing Statement is effective for 5 years (10 years in Wyoming), and if a Continuation is not filed timely, the Financing Statement will lapse and the Security Interest will be extinguished.

Once the debtor fulfills the obligation, a Termination should be filed.

Where to File a Financing Statement

The Financing Statement is filed under the debtor’s name, and the debtor’s name should be as it appears on the public organic record.

Financing Statements, for land-related collateral, are generally filed in the real estate records of the county where the land is located.

The Secured Party must file a Financing Statement in the state in which the Debtor is located. The definition of location may vary based on whether the debtor is a registered or unregistered entity, an individual or foreign entity.

Registered Entities: including corporations, limited liability corporations and limited partnerships, are deemed to be “located” in the state in which they are incorporated or formed.
Unregistered Entities: primarily partnerships, are deemed to be “located” in the state in which the organization has its place of business, or if it has more than one place of business, its “chief executive office.”
Individuals are “located” in their primary state of residence, as indicated on the unexpired driver’s license.

Section 9-307 defines the debtor’s location.

9-307. LOCATION OF DEBTOR.

(b) [Debtor’s location: general rules.]

Except as otherwise provided in this section, the following rules determine a debtor’s location:

(1) A debtor who is an individual is located at the individual’s principal residence, as indicated on the unexpired driver’s license.

(2) A debtor that is an organization and has only one place of business is located at its place of business.

(3) A debtor that is an organization and has more than one place of business is located at its chief executive office.

If a foreign debtor is in a jurisdiction outside the United States, and the jurisdiction does not provide for a public filing system, the debtor is deemed to be “located” in the District of Columbia.

Conveying Security Interest via UCCs

Posted on October 16, 2017 by wpengine - UCC Financing Statements

UCC Filings Part 2 | Conveying a Security Interest under Article 9

If you missed part 1 of our series, check out the Introduction & Scope of Article 9. In part 2 of our series on secured transactions, we’ll cover conveying a security interest under Article 9.

Conveying a Security Interest

UCC filings are a form of consensual security. This means your debtor must consent or agree to the filing of the UCC.

“Securing receivables via a UCC filing requires the debtor to sign a security agreement – which makes it consensual – the debtor is agreeing to the filing. This security agreement grants the creditor a security interest in the goods/services (as noted in the collateral description within the agreement) in the event the debtor defaults or files for bankruptcy protection. A properly perfected UCC filing benefits creditors that provide equipment, inventory and consigned goods.”

Attachment

A security interest attaches or forms once the creditor has established a security interest in the collateral. To create the security interest, the following requirements must be met:

Secured Party and the debtor execute a Security Agreement,
Secured Party gives value for the security interest, and
Debtor has rights to the collateral

Security Agreement

Under Article 9-102, a Security Agreement is an authenticated agreement that creates or provides a security interest. The agreement must include the date, debtor’s legal name and address, authentication, granting clause, collateral description and default terms.

There are additional clauses which are commonly incorporated in a Security Agreement.

After-Acquired Property Clause: provides for a floating lien which will attach to specified property the debtor may acquire in the future.
Future Advance Clause: extends to future liabilities of the debtor to the Secured Party.
Acceleration Clause: may provide that the full amount of the debt will mature upon default.
Add-On Clause: failure to make payment on the goods purchased permits both current and prior contract items to be repossessed.

Rights & Duties of The Secured Party

The debtor and the Secured Party have an obligation to preserve the pledged collateral, when the collateral is in the possession of the Secured Party

9-207. RIGHTS AND DUTIES OF SECURED PARTY HAVING POSSESSION OR CONTROL OF COLLATERAL.

(a) [Duty of care when Secured Party in possession.]

Except as otherwise provided in subsection (d), a Secured Party shall use reasonable care in the custody and preservation of collateral in the Secured Party’s possession. In the case of chattel paper or an instrument, reasonable care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed.

The debtor is responsible for the cost of reasonable expenses incurred for the preservation, use or custody of the collateral, as well as the costs of accidental loss or damage when the costs exceed the insurance coverage.

Except for money (which should be used to reduce the amount of the secured obligation or sent directly to the debtor), the Secured Party may keep any increase in collateral, must ensure the collateral remains identifiable and may use or operate the collateral if necessary to preserve the collateral.

Should the Secured Party fail to meet the imposed obligations, the Secured Party is liable for the loss.