The Uniform Law Commission (ULC) has
recently submitted amendments to Article 9 of the Uniform Commercial Code,
which governs secured transactions. These recommendations represent the
first significant changes to Article 9 since 1998. The purpose for these
amendments was not to rewrite Article 9 but rather to address specific
issues that became apparent after Revised Article 9 was enacted in 2001.
In several instances multiple sections of Article 9 had to be amended to
rectify a specific issue. These
changes will affect the secured parties’ filing, searching, and due
There are many credit
professionals who do not believe Article 9 has any bearing on their credit
practices because they do not obtain security agreements from their
customers. Regardless of whether security agreements are obtained or not,
the understanding and use of Article 9 informs the credit professional not
only of additional trade references but also reveals those creditors who
have obtained a security interest in their product and accounts
receivable. Furthermore, knowledge of Article 9 provides the credit
professional the ability to challenge the claim of any improperly filed
There are numerous cases
including a secured creditor who lost a claim of $296,000.00 because they
failed to include the periods following the debtors' initials on their
financing statement. Another secured creditor lost their claim of
$310,000.00 due to their omission of the word "Inc" in the
debtors' name on their financing statement. These examples, unfortunately,
are not isolated incidents but everyday occurrences. The knowledgeable
credit professional can recover hundreds of thousands of dollars for their
company by just knowing the rules of Article 9.
The ULC has proposed a
nationwide effective date of July 1, 2013, along with a five-year
transition period. It is believed this will provide the majority of states
time to ratify and implement the proposed changes. Already nine states,
Connecticut, Indiana, Minnesota, Nebraska, Nevada, North Dakota, Rhode
Island, Texas, and Washington state have ratified Section 9-503(a)(4).
In all, there are
thirty-five proposed changes to Article 9 including changes to the UCC-1
Financing Statement and Addendum forms and the UCC-3 Amendment and
Addendum forms. This article discusses the most significant changes:
9-102(a)(10). Certificate of Title
Some state statutes require the
security interest be indicated on the certificate as a condition of
perfection, while other states provide that perfection occurs when the
application is delivered to the issuing agency. This section has been
amended to clarify that the term applies to both statutes. It also applies
to electronic records created as an alternative to the issuance of a paper
certificate. Section 9-311 has also been changed to reflect the revised
9-102(a)(68). Public Organic Record
This is a new
definition. It is a clarification of which public record is the correct
source of a debtors' name for purposes of Section 9-503(a)(1).
9 currently states that the correct name for a registered organization for
inclusion in a financing statement is the one on the “public record.”
Because of uncertainty about which types of records are “public
records,” the revised code will instead use the term “public organic
record,” meaning a record that is available for public inspection.
“Public organic records” will include records filed with, or issued
by, the state to form an organization, e.g. articles of incorporation,
articles of organization, or limited partnership agreements.
Section 9-102(a)(71). Registered
definition has changed to incorporate the new definition of "public
organic record" added by Section 9-102(a)(68). The result is that
some entities that are formed without the need for the filing of a public
record will become registered organizations when the 2010 Amendments take
effect. The requirements for sufficiency of a registered organization
debtor name in section 9-503(a)(1) have been modified to reflect the new
9-105. Clarification to Rules Relating to “Control” of Electronic
this section provides a six-factor test for whether a secured party has
control of electronic chattel paper (ECP). The revision adds a general
test, requiring that the system employed to evidence the transfer of ECP
“reliably establish the secured party as the person to which the chattel
paper was assigned.” The six-factor test has been retained as a safe
Section 9-307. Location of Debtor
(f)(2) added language to clarify existing law for determining the location
of a registered organization organized under federal law.
section provides the rules for determining a federally-organized
debtor’s “location,” and thus the state in which a financing
statement naming that debtor must be filed. The revisions clarify that for
registered entities organized under federal law (e.g. banks), the “main
office” or “home office” (terms frequently used in the federal
statutes) is the organization’s “location” for purposes of filing
the financing statement.
This change is important for
secured transactions involving federally-chartered institutions. In other
cases with ordinary individual or entity borrowers, secured parties may
continue to use the state of incorporation/organization for business
entities and the state of principal residence for individuals.
9-316(h)-(i) Continued Perfection of Security Interest Following Change of
section currently provides that perfected security interests that attach
prior to a debtor’s move to another state remain perfected for four
months after the move. The revisions add a new subsection (h) that
provides for continued perfection of newly-acquired security interests
that attach within four months after the debtor moves, so long as the
secured party has taken steps that would have perfected the security
interest in the debtor’s original state. The perfection continues until
the end of the four-month period. Similarly, a new subsection (i) provides
for automatic perfection of security interests that attach within four
months after a new debtor in another state becomes bound by an existing
security agreement with the original debtor (e.g. by merger) – so long
as the secured party has taken steps that would have perfected the
security interest against the original debtor. The new subsections are
reflected in corresponding changes to Section 9-326.
9-406. Discharge of Account Debtor; Notification of Assignment;
Identification and Proof of Assignment; Restrictions on Assignment of
Accounts, Chattel Paper, Payment Intangibles, and Promissory Notes
The text of subsection (e) was amended to clarify the
rights of a buyer of accounts at a foreclosure.
9-503. Changes to Debtor Name Provisions
9-503 determines when a financing statement sufficiently provides the
correct name of a debtor. In the past, small variations in the names of
organizations and individuals have made it difficult for secured parties
to determine the proper name to call a debtor in a financing statement.
Amended Section 9-503 states that for registered organizations, the name
of the debtor will be sufficient if it matches the name on the public
organic record most recently filed in the jurisdiction of organization.
For individual debtors, the code provides two alternative provisions.
State legislatures may choose the one that best meets the needs of their
a) Alternative A, the “Only
if” option: If the debtor has a driver license (or other state i.d.)
that has not expired, the financing statement may use the name on the
driver’s license. If (and only if) the debtor does not have a driver’s
license, the financing statement may use the debtor’s first personal
name and surname.
b) Alternative B, the “Safe
Harbor” option: The financing statement sufficiently names the debtor by
providing (a) the debtor’s individual name as determined by state law,
(b) the debtor’s surname and first personal name, or (c) the name on an
unexpired driver license (or other state i.d.).
is possibly the most significant of the upcoming changes.
9-507. Effect of Certain Events of Effectiveness of Financing Statement.
Subsection (c) has been amended to clarify when the
secured party must take action to amend the debtor name on a filed
financing statement. The new version focuses on when the financing
statement becomes seriously misleading rather than when the debtor
actively changes its name. Secured parties should keep in mind that the
expiration of an individual's driver's license would be a name change
event if the jurisdiction (state) has adopted Alternative A of Section
9-515. Duration and Effectiveness of Financing Statement; Effect of Lapsed
Subsection (f) has been amended to address a filing
office concern. The new version adds the word "initial" before
"financing statement." Technically, this is a change in the law,
but not a change in practice.
9-516. Organizational Information on a Financing Statement
Section 9-516 provides that a financing statement can be rejected
if it fails to state the debtor’s (1) type of organization, (2)
jurisdiction of organization, and (3) organizational identification
number. The section was intended to help searchers eliminate filings that
appear to relate to their debtors but instead relate to other,
similarly-named, debtors. The ULC concluded that the burden of providing
these three items was not worth the marginal benefit. The information is
generally relevant only to registered organizations, and states already
preclude the use of duplicative or deceptively similar names for such
organizations. Thus, the new amendments eliminate any requirement for this
9-518. Information Statement
(c) and (d) are new. Currently, only the debtor may file a Correction
Statement. The new subsections expressly allows the secured party to file
the record when it believes a record was filed by a person that was not
entitled to do so under Section 9-509(d). The amended section also changes
the title of the record from "correction statement" to
"information statement". However, the statements will continue
to have no specific legal effect.
9-521. UCC Forms (UCC-1 and UCC-3) Changes to National Forms
The 2010 Amendments
contain new UCC-1 and UCC-3 forms that have been designed to replace the
current national forms in use. The new forms which carry a revision date
of April 20, 2011, were designed to implement the statutory changes to
Article 9 through non-substantive changes to layout and wording. The forms
do not change the statute in any way. The forms received final approval by
the International Association of Commercial Administrators (IACA) Board of
Directors on April 21, 2011 and are now part of the official version of
the 2010 Amendments.
is important that filers do not use the new forms until the 2010
Amendments go into effect in each state and until adopted by the given
state legislature. The new forms do not provide the information required
for filing under current law. Consequently, filing offices must reject any
record submitted on new forms prior to the individual states effective
date. Even then the state legislature may modify or decide not to adopt
specific changes suggested by the ULC.
9-801. Effective Date.
This section sets a
uniform effective date of July 1, 2013.
9-802. Savings Clause
Similar to Section
9-702, except that provisions from the Revised Article 9 that are not
applicable to the 2010 Amendments have been deleted.
9-803. Security Interest Perfected Before Effective Date
This section provides
that security interests perfected before the effective date remain
effective, but must satisfy any new requirements for perfection within a
9-804. Security Interest Unperfected Before Effective Date
This section provides
when a security interest unperfected under former law becomes perfected
after the 2010 Amendments take effect.
9-805. Effectiveness of Action Taken Before Effective Date
This section creates a
five-year transition period for the secured party to bring existing
financing statements into compliance with the new filing requirements.
9-806. When Initial Financing Statement Suffices to Continue Effectiveness
of Financing Statement
This section explains
when a financing statement filed prior to the effective date can be
continued or when a financing statement must be filed in lieu of a
9-807. Amendment of Pre-Effective-Date Financing Statement
This section explains
when and how a financing statement filed before the 2010 Amendments take
effect can be amended.
If you have any
questions or would like assistance in preparing for these changes in UCC
Article 9, please contact David Balovich at (214) 914 1311or firstname.lastname@example.org.
I wish you well
The information provided above is for
educational purposes only and not provided as legal advice. Legal advice
should be obtained from a licensed attorney in good standing with the Bar
Association and preferably Board Certified in either Creditor Rights or