Background of the UCC
The Uniform Commercial Code (UCC) was established to govern commercial transactions. It was an attempt to have nationwide uniformity in the legal aspects of business dealings. Article 9 of the UCC specifically addresses secured transactions, which are loans that have a lien placed on property in order to secure the debt or obligation. Filing a UCC financing statement is an attempt by the creditor to protect its right to be repaid for the loan.Although the Code was adopted by most of the states over twenty years ago, thousands of local amendments have made it anything but â€œuniform.â€ The following are some highlights of the proposed make over of Article 9. Upon approval by the states, the re-write is scheduled to be effective July 1, 2001.
Broadening of the required signature
The debtor will no longer need to sign each written security agreement. Under the new requirements, a record in written or electronic form will be authenticated by the debtor. This addresses and facilitates the trend toward electronic filing and searching. Since legal filings can only be made if authorized by the debtor, unauthorized filings have no legal effect on business transactions. It also will not be the filing office’s responsibility to check the sufficiency of a filing. A security interest is perfected if the filing is accepted by the filing office even if information is inaccurate. The priority of the secured creditors will be protected.
Making it easier to file
Original financing statements will receive a unique number. Having this number along with the acceptance of national forms for original, addendums and amendments will greatly improve the system. Dual filings will be eliminated. Filings will be made on the state level, with the exception of real estate filings which will continue at the local level. The “where to file?” question becomes easier to answer. Domestic corporations, limited partnerships and limited liability companies are registered organizations. Therefore if the debtor is one of these, the state in which they organized is where the financing statements should be filed. For other debtors (i.e. proprietorships and non-USA corporations), the place of business or residence dictates the filing jurisdiction. Note that foreign (non-USA) corporations are not registered organizations so if their place of business or chief executive office is in a location that requires filing, the filing should be done there. If not, the foreign corporation will be considered located in the District of Columbia.
Transition & Searching
The question is not if, but when will this all be effective? If current filings use a method of perfection that does not perfect the interest under the new Article 9, then re-filing or perfecting must be done within one year of the effectiveness of new Article 9. Assuming passage by state governments, July 1st of 2001 will be the effective date. As not all the states may pass the new Article in time, we will continue to use care on where and how we perform searches.