UCC COMMENTS Presentation

Presenting a live 90-minute webinar with interactive Q&A
UCC Article 9 Update: Preparing for the New Rules

Navigating New Secured Lending Rules, Filing and Search Procedures,
and Due Diligence Practices for Lenders
WEDNESDAY, JUNE 12, 2013
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
Today’s faculty features:

Edwin E. Smith, Partner, Bingham McCutchen, New York
Richard R. Gleissner, Partner, Gleissner Law Firm, Columbia, S.C.
Kevin Caiaccio, The Caiaccio Law Firm, Atlanta
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2010 AMENDMENTS
TO
ARTICLE 9 OF THE UNIFORM
COMMERCIAL CODE
Selected Problems: Statutory Amendments and Official Comment Changes
Kevin Caiaccio
The Caiaccio Law Firm, Atlanta, Georgia
Richard Gleissner
Gleissner Law Firm, Columbia, South Carolina
Edwin E. Smith
Bingham McCutchen LLP, New York City, NY and Boston, MA
5
Introduction
Article 9 is the secured transaction article of the Uniform Commercial

Code
Article 9 was most recently revised, extensively, in 1998, with a
uniform effective date of July 1, 2001.
The revised Article 9 is now in effect in all states
The revised Article 9 was a total re-write of the Article
The 2010 amendments are not
They are surgical strikes at a few statutory changes and changes to
the Official Comments
6
Introduction
Rationale for the amendments
Different approaches as to when to consider revisions to a UCC Article

One approach is that the UCC must be perfect
The other is the “percolate” approach
Here the sponsoring organizations - the American Law Institute and the
Uniform Law Commission - had to respond to two initiatives
•Individual debtor name amendments
•IACA proposals
7
Introduction
Standards
No alteration of policy decisions made in the 1998 revisions

unless significant problems have arisen in practice
The amendments should focus on ambiguities in the existing
statutory text that are causing either substantial problems in
practice, or addressing the promulgation of non-uniform statutory
amendments
A change to the Official Comments would be preferred where the
statutory language is clear and produces the desired result, but
judicial experience or experience in practice indicates that some
clarification may be desirable
8
Introduction
Enactment Process
Uniform effective date of July 1, 2013

Transition provisions
State enactments as of May 24, 2013:
Arkansas, Colorado, Connecticut, Delaware, District of
Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana,
Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan,
Minnesota, Mississippi, Montana, Nebraska, Nevada, New
Hampshire, New Mexico, North Carolina, North Dakota, Ohio,
Oregon, Puerto Rico, Rhode Island, South Dakota, Tennessee,
Texas, Utah, Virginia, Washington, West Virginia, Wisconsin and
Wyoming
9
Introduction
Enactment Process
Alternative A vs. Alternative B
Non-uniform provisions in state enactments

Delayed effective dates
UCC Section 9-521 forms
10
Characterization
Problem 1
Lender 1 has extended credit to Debtor and has taken a security interest in all of
Debtor’s investment property. The security interest has been perfected by Lender 1
filing a financing statement against Debtor covering “investment property”. Debtor
wants to borrow funds from Lender 2 and offers to Lender 2 as collateral a promissory
note issued by Issuer to Debtor. The promissory note is one of several issued by Issuer
to Debtor and Debtor’s family members in connection with an acquisition several years
earlier. Is the promissory note considered investment property?
Revision: Highland Capital Management LP v. Schneider, 8 N.Y. 3d 406

(2007). Official Comment 13 to UCC § 8-102 (2010).
11
9-102(a)(49) Defines Investment Property
Copyright © 2010 by The American Law Institute and the National Conference of Commissioners on Uniform
State Laws. Reproduced with the permission of the Permanent Editorial Board for the Uniform Commercial
Code. All rights reserved.
12
Comment 13 to 8-102 (2010)
13
Characterization
Problem 2
Lender is extending credit to Debtor, a Massachusetts business trust. Under
Massachusetts law a business trust is formed by a declaration of trust. Massachusetts
law then requires the declaration of trust to be filed with the Massachusetts Secretary of
State’s office in order for Debtor to have the attributes of a Massachusetts business
trust, such as limited liability for the trustees. Is Debtor a registered organization or a
common law trust?
Revision: UCC § 9-102(a)(71) (2010).
14
9-102(a)(71) (2010)
15
Comment 11 to 9-102 (2010)
16
Comment 11 continued
17
Comment 11 continued
18
Characterization
Problem 3
Buyer purchased an automobile from Dealer and granted to Dealer a security
interest in the automobile to secure payment of the purchase price. The state
Department of Motor Vehicles (DMV) issued a certificate of title, but the certificate of
title did not indicate a security interest in favor of Dealer. However, the security
interest is indicated on the electronic records maintained by the DMV. The electronic
records are publicly searchable. Is Dealer’s security interest perfected?
Revision: UCC §§ 9-102(a)(10) and 9-311(a)(2) and (3) (2010).
19
9-102(a)(10) (2010)
20
9-311(a)(2) and (3) (2010)
21
Characterization
Problem 4
Dealer leases motor vehicles to end-users. Buyer buys from Dealer “all rights to
payment arising from [certain identified leases] ”. What is the characterization under
Article 9 of the rights to payment arising from the identified leases? Would the
characterization be different if Buyer had expressly disclaimed any recourse to the
motor vehicles when it bought the rights to payment?
Revision: In re Commercial Money Center, Inc., 350 B.R. 465 (B.A.P. 9th Cir.
2006). Official Comment 5.d to UCC § 9-102 (2010)
22
Comment 5(d) to 9-102 (2010)
23
Comment 5(d) continued
24
Comment 5(d) continued
25
Commend 5(d) continued
26
Perfection and Priority
Problem 5
Bank lends funds to ABC Corporation, an Illinois corporation (“ABC Illinois”),
and takes a security interest in ABC Illinois’ existing and future accounts. Bank files a
financing statement against ABC Illinois with the Secretary of State of Illinois covering
accounts. ABC Illinois, without Bank’s knowledge or consent, reincorporates in
Delaware on January 4, 2011, by forming a Delaware corporation (“ABC Delaware”)
into which ABC Illinois is merged. Does Bank have a perfected security in ABC
Delaware’s accounts arising after January 4, 2011?
Revision: UCC § 9-316(i) (2010).
Bank does not file a financing statement against ABC Delaware in Delaware
before the end of January of 2011. Finance Company lends funds to ABC Delaware on
January 25, 2011, and takes a security interest in ABC Delaware’s existing and future
accounts. On January 25, 2011, Finance Company files a financing statement with the
Secretary of State of Delaware covering ABC Delaware’s accounts. Whose security
interest in the post-January 4, 2011, accounts has priority - Bank’s or Finance
Company’s?
Revision: UCC § 9-326 (2010). 27
9-316(i) (2010)
28
9-316(i) continued
29
9-326 (2010)
30
9-326 (2010)
31
Problem 6
Finance Company lends funds to Debtor and takes a security interest in Debtor’s
assets including a commercial tort claim that is described in the security agreement.
Finance Company files a financing statement against Debtor. The collateral indication
on the financing statement refers to “all commercial tort claims” but does not describe
more specifically the commercial tort claim identified in the security agreement or
indicate that the collateral is “all assets”. Debtor sells the commercial tort claim for
cash to Securitization Asset Trust. Does Securitization Asset Trust take the commercial
tort claim subject to Finance Company’s security interest?
Revision: UCC § 9-317(d) (2010).
32
9-317(d) (2010)
33
Problem 7
Creditor obtains a judgment against Debtor. Debtor is unable to post an appeal

bond but deposits funds in a special deposit account maintained with Bank in lieu of
posting an appeal bond. Bank’s customer on the deposit account is the clerk of court.
Debtor grants to Creditor a security interest in the deposit account in order to secure
Debtor’s liability under the judgment if Debtor does not prevail on appeal. Debtor,
Creditor and the clerk of the court enter into an agreement by which the clerk of court
acknowledges that it has control of the deposit account on behalf of Creditor. Bank is
not a party to the agreement. Under what provision of Article 9 does Creditor have
control of the deposit account?
Revision: Official Comment 3 to UCC § 9-104 (2010). Cf. UCC § 8-

106(d)(3).
34
Comments to 9-104 (2010)
35
Comments – 9-104 continued
36
Comments – 9-104 continued
37
Problem 8
Lenders A, B and C extend credit to Debtor in a syndicated loan for which A acts
as agent. A is also a depositary bank, and Debtor maintains a deposit account with A.
Debtor grants to A, for the benefit of A, B and C, a security interest in the deposit
account. Is the security interest perfected by control for the benefit of all three lenders?
Revision: Official Comment 3 to UCC § 9-104 (2010).
38
Comments to 9-104 (2010)
39
Problem 9
Debtor has been negotiating for a loan from Finance Company secured by
Debtor’s existing and future accounts. After Finance Company has agreed to make the
loan, but before a security agreement is executed, Finance Company, without
authorization from Debtor, files a financing statement against Debtor covering Debtor’s
accounts. Subsequently, Bank extends credit to Debtor secured by a security interest in
Debtor’s existing and future accounts. Bank perfects by filing a financing statement
against Debtor covering accounts. Still later, Finance Company extends credit to
Debtor and obtains a security interest in Debtor’s existing and future accounts under a
security agreement then executed by Debtor. In the security agreement Debtor ratifies
the filing of Finance Company’s financing statement. Whose security interest in the
accounts has priority - Finance Company’s or Bank’s?
40
Comment 4 to 9-322 (2010)
41
Comment 4 continued
Copyright © 2010 by The American Law Institute and the National Conference of
Commissioners on Uniform State Laws. Reproduced with the permission of the Permanent
Editorial Board for the Uniform Commercial Code. All rights reserved.
42
Comment 4 continued
43
Comment 4 continued
44
Problem 10
Secured Party buys chattel paper from Debtor. The chattel paper is tangible
chattel paper, but some provisions of the chattel paper have been amended
electronically. Secured Party takes possession of the tangible chattel paper and obtains
control of the electronic amendments. Has Secured Party perfected its purchase?
Would it matter if Secured Party had not obtained control of the electronic amendment?
45
4. Possession and Control. The priority afforded by this section turns in
part on whether a purchaser “takes possession” of tangible chattel paper.
Similarly, the governing law provisions in Section 9-301 address both
“possessory” and “nonpossessory” security interests. To qualify for
priority under subsection (a) or (b), a purchaser must “take[ ] possession of
the chattel paper or obtain[ ] control of the chattel paper under Section 9-
105.” When chattel paper comprises one or more tangible records and one
or more electronic records, a purchaser may satisfy the possession-or-
control requirement by taking possession of the tangible records under
Section 9-313 and having control of the electronic records under Section 9-
105. In determining which of several related records constitutes chattel
paper and thus is relevant to possession or control, the form of the records
is irrelevant.
Comment 4 to 9-330 (2010)

46
Rather, the touchstone is whether possession or control of the record would
afford the public notice contemplated by the possession and control
requirements. For example, because possession or control of an
amendment extending the term of a lease would not afford the
contemplated public notice, the amendment would not constitute chattel
paper regardless of whether the amendment is in tangible form and the
lease is in electronic form, the amendment is electronic and the lease is
tangible, the amendment and lease are both tangible, or the amendment and
lease are both electronic.
...
Comment 4 continued
47
A secured party may wish to convert tangible chattel paper to electronic
chattel paper and vice versa. The priority of a security interest in chattel
paper under subsection (a) or (b) may be preserved, even if the form of the
chattel paper changes. The principle implied in the preceding paragraph,
i.e., that not every copy of chattel paper is relevant, applies to “control” as
well as to “possession.” When there are multiple copies of chattel paper, a
secured party may take “possession” or obtain “control” of the chattel
paper if it acts with respect to the copy or copies that are reliably identified
as the copy or copies that are relevant for purposes of possession or
control. This principle applies as well to chattel paper that has been
converted from one form to another, even if the relevant copies are not the
“original” chattel paper.
Comment 4 continued
48
Third Party Rights
Problem 11
Secured Party lends funds to Debtor and takes a security interest in a promissory
note issued by Maker and payable to Debtor. The promissory note states conspicuously
on its face “This promissory note may not be transferred by [Debtor] without [Maker’s]
prior written consent.” Debtor defaults and Secured Party sells the promissory note to
Buyer in a private sale. May Buyer enforce the promissory note against Maker?
Revision: UCC §§ 9-406(e) and 9-408(b) (2010).
49
9-406(e) and 408(b) (2010)
50
Proposed 9-408(a)
51
Filing - Debtor’s Name
Problem 12
Secured Party is about to extend credit to Debtor secured by a security interest in

Debtor’s existing and after-acquired inventory and accounts. Debtor is a corporation.
In its charter, the title line shows the name as “Inn of the 6th Happiness”, Article One of
the charter states the name of the corporation to be “Inn of the Sixth Happiness, Inc.”,
and the signature block on the charter shows the name as “Inn of 6th Happiness Corp.”
The name on the Secretary of State’s web site listing corporations organized in the state
is “IN OF 6TH HAPPINESS” What name should be provided on the financing
statement as Debtor’s name?
Revision: UCC § 9-503(a)(1) (2010).
52
9-503(a)(1) (2010)
53
(68) “Public organic record” means a
record that is available to the public for inspection and is:
(A) a record consisting of the
record initially filed with or issued by a State or the United
States to form or organize an organization and any record
filed with or issued by the State or the United States which
amends or restates the initial record; ...
9-102(a)(68) (2010)
54
Filing - Debtor’s Name
Problem 13
Secured Party is about to extend credit to Debtor, an individual doing business as

a sole proprietor. The credit will be secured by a security interest in Debtor’s existing
and after-acquired inventory and accounts. The name on Debtor’s birth certificate is
Lester Henry Smith. The name shown on his passport is Lester H. Smith. The name
shown on his driver’s license is L. Henry Smith. His friends, customers and suppliers
call him “L.H.”. What name should be provided on the financing statement as Debtor’s
name?
Revision: UCC §§ 9-503, 9-506 and 9-507 (2010).
55
9-503 (2010) – Alternative A
Commissioners on Uniform State Laws. Reproduced with the permission of the
Permanent Editorial Board for the Uniform Commercial Code. All rights reserved.
56
Alternative B
Commissioners on Uniform State Laws. Reproduced with the permission of the Permanent
Editorial Board for the Uniform Commercial Code. All rights reserved. 57
Filing - Other
Problem 14
Secured Party extends credit to Debtor secured by a security interest in Debtor’s

equipment. Secured Party prepares a financing statement to be filed against Debtor
covering the equipment but neglects to provide on the financing statement Debtor’s
jurisdiction of organization, type of organization or organizational identification
number. Will the filing office accept the financing statement?
Revision: UCC § 9-516 (2010).
58
9-516 (2010)
59
9-516 continued
60
9-516 continued
61
9-516 continued
62
9-516 continued
63
9-516 continued
64
Filing - Other
Problem 15
Secured Party extends credit to Debtor, a radio station. To secure the credit,
Secured Party takes a security interest in Debtor’s existing and after-acquired inventory
and accounts and perfects the security interest by filing a normal initial financing
statement. After the closing, Secured Party determines that, since Debtor is a radio
station, Debtor qualifies as a transmitting utility. May Secured Party amend the initial
financing statement to designate Debtor as a transmitting utility in order to have the
benefit of UCC § 9-515(f)’s anti-lapse provision?
Revision: UCC § 9-515(f) (2010).
65
9-515(f) (2010)
66
Filing - Other
Problem 16
Finance Company has extended credit to Debtor secured by a security interest in

Debtor’s existing and after-acquired inventory and accounts. Finance Company filed a
financing statement against Debtor covering inventory and accounts. Bank had
previously filed a financing statement against a different debtor. Later, intending to
terminate the effectiveness of its financing statement, the Bank filed a termination
statement that inadvertently transposed two digits of the file number to which Bank had
intended to refer. As a result, Bank’s termination statement was linked to Finance
Company’s financing statement. A search of the filing office’s records against Debtor
would now suggest that Financing Company’s financing statement had been terminated.
What action should Finance Company take, if any?
Revision: UCC § 9-518 (2010).
67
9-518(c) (2010)
68
Alternative A
69
Alternative B
70
Filing - Other
Problem 17
Judge sentenced Defendant to time in prison. In prison Defendant managed,
without Judge’s authorization or consent, to file a financing statement against Judge
covering all of Judge’s assets. Judge discovers and wants to remove the financing
statement from the public record. What can Judge do?
Revision: UCC § 9-518 (2010). See also UCC § 9-509(d)(2).
71
9-518(a) (2010)
72
Alternative A
73
Alternative B
74
Enforcement
Problem 18
Lender holds a promissory note issued by Maker secured by a real estate

mortgage granted by Maker in favor of Lender. The mortgage has been recorded in the
local real estate recording office. Under the law of the state in which the real estate is
located, only the mortgagee of record may foreclose non-judicially on the mortgaged
property.
Lender sells the promissory note to Buyer. No assignment of the mortgage from
Lender to Buyer is recorded in the real estate office. Later, Maker defaults, and Buyer
seeks to foreclose on the mortgage non-judicially. May Buyer do so without obtaining
an assignment of the mortgage from Lender and recording the assignment?
Revision: UCC § 9-607(b) (2010).
75
9-607(b) (2010)
76
Enforcement
Problem 19
Lender extended credit to Debtor secured by a security interest in Debtor’s

equipment. Following Debtor’s default, Lender, in reliance upon a waiver by
Debtor in the security agreement of UCC § 9-610(c), purchased the equipment at
its own private sale. Is the waiver enforceable?
Revision: Official Comment 3 to UCC § 9-602 (2010) and Official

Comment 7 to UCC § 9-610 (2010) and Official Comment 2 to UCC § 9-624; see
UCC § 9-602(10).
77
Comment to 9-602 (2010)
78
Comment 3 continued
79
Enforcement
Problem 20
Lender extended credit to Debtor secured by a security interest in Debtor’s

equipment. Following Debtor’s default, Lender proposes to sell the equipment in an
auction over the Internet. Bids will be accepted at the Internet site for a period of 72
hours after which bidding will be closed and the winning bidder will be determined.
How can Lender satisfy the requirement of UCC § 9-613(1)(E) to state in its
notification of disposition the time and place of a public disposition or the time after
which a private disposition will be made?
Revision: Official Comment 2 to UCC § 9-610 (2010) and Official Comment 2

to UCC § 9-613 (2010).
80
Comment 2 to 9-610 (2010)
81
Comment 2 to 9-613 (2010)
82
Transition
• Uniform effective date of July 1, 2013

• Debtor name on a financing statement – registered organization or individual
debtor
• Effective pre-effective date
• Not effective post-effective date
• Debtor location – Massachusetts-type business trust
• Financing statement filed in the correct location pre-effective date
• Financing statement not filed in the correct location post-effective date
83
Contact
Kevin Caiaccio
The Caiaccio Law Firm, Atlanta, Georgia
404.846.4990, ktc@clf-attorneys.com
Richard Gleissner
Gleissner Law Firm, Columbia, South Carolina
803.787.0505, rick@gleissnerlaw.com
Edwin E. Smith
Bingham McCutchen LLP, New York City, NY and Boston, MA
617.951.8615, edwin.smith@bingham.com
84

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Presenting a live 90-minute webinar with interactive Q&A

UCC Article 9 Update: Preparing for the New Rules

WEDNESDAY, JUNE 12, 2013

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

Today’s faculty features:

Selected Problems: Statutory Amendments and Official Comment Changes

Article 9 is the secured transaction article of the Uniform Commercial

Rationale for the amendments

Different approaches as to when to consider revisions to a UCC Article

No alteration of policy decisions made in the 1998 revisions

Uniform effective date of July 1, 2013

Alternative A vs. Alternative B

Non-uniform provisions in state enactments

Revision: Highland Capital Management LP v. Schneider, 8 N.Y. 3d 406

Revision: UCC § 9-102(a)(71) (2010).

Revision: UCC §§ 9-102(a)(10) and 9-311(a)(2) and (3) (2010).

Revision: UCC § 9-317(d) (2010).

Creditor obtains a judgment against Debtor. Debtor is unable to post an appeal

Revision: Official Comment 3 to UCC § 9-104 (2010). Cf. UCC § 8-

Revision: Official Comment 3 to UCC § 9-104 (2010).

Revision: Official Comment 4 to UCC § 9-322 (2010).

Revision: Official Comment 4 to UCC § 9-330 (2010).

Comment 4 to 9-330 (2010)

Revision: UCC §§ 9-406(e) and 9-408(b) (2010).

Secured Party is about to extend credit to Debtor secured by a security interest in

Revision: UCC § 9-503(a)(1) (2010).

Secured Party is about to extend credit to Debtor, an individual doing business as

Revision: UCC §§ 9-503, 9-506 and 9-507 (2010).

Secured Party extends credit to Debtor secured by a security interest in Debtor’s

Revision: UCC § 9-516 (2010).

Revision: UCC § 9-515(f) (2010).

Finance Company has extended credit to Debtor secured by a security interest in

Revision: UCC § 9-518 (2010).

Revision: UCC § 9-518 (2010). See also UCC § 9-509(d)(2).

Lender holds a promissory note issued by Maker secured by a real estate

Revision: UCC § 9-607(b) (2010).

Lender extended credit to Debtor secured by a security interest in Debtor’s

Revision: Official Comment 3 to UCC § 9-602 (2010) and Official

Lender extended credit to Debtor secured by a security interest in Debtor’s

Revision: Official Comment 2 to UCC § 9-610 (2010) and Official Comment 2

• Uniform effective date of July 1, 2013

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