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Signing a contract with a buyer is often seen as a relief, as it symbolizes the closing of a deal. However, contracts between buyers and sellers often come with a certain type of risk. A Uniform Commercial Code (UCC) filing can create security interests in goods and personal property involved in the transaction to help minimize the risk to the creditor.


UCC filings become incredibly valuable when there is a breach of the contract, and the wronged party needs to recover damages. The UCC filing can protect the secured party and make the recovery of damages easier.



What to Expect from a UCC Article 9 Filing

A UCC Article 9 filing covers the creation of security interests in goods. The security interest created is something like the old chattel mortgage or conditional sales contract.

To create a valid security interest under Article 9, the creditor or supplier of the goods (usually inventory, equipment or accounts receivable) must

  1.  Extend credit
  2.  Receive a security agreement signed by the debtor or buyer of the good
  3.  Perfect the security agreement by filing a Financing Statement, wherever specified by the UCC, usually with a state agency in the state where the debtor is located. The Financing Statement must be signed by both debtor and creditor, and filed, in order to obtain a priority over other creditors. This is important, particularly in cases of bankruptcy, and where there are other secured parties.

Although there is no objection to taking a security interest after the credit has been extended, it is easier for a creditor to obtain priority by taking and filing the interest before the credit is granted. Often the debtor will decline to sign the necessary documents after the credit is fully extended, and bankruptcy preference issues could arise that would nullify the security.



Priority is important when it comes to foreclosure or realization on the security because, in the case of multiple filings, the courts usually follow the “first in time, first in right” rule. Priority is unimportant if another supplier of goods has received a purchase money security interest (PMSI) in the specific goods sold, given appropriate notices, and filed within a specified time of the debtor’s actual receipt of the goods. The holder of a validly perfected PMSI has priority, no matter when he files.



Since creditors can search the records in the office of the agency designated to receive and file the Financing Statement in order to see who else may have perfected their security interests, it is important to file under the proper legal name of the debtor, and in the proper jurisdiction where the debtor maintains his principal place of business. Failure to file or filing in the wrong jurisdiction under the correct name of the debtor can result in the loss of the security.



As to be expected, there are always exceptions to what kind of property can be the subject of an Article 9 filing. The best example is where the property is titled motor vehicles. These can be perfected only by means of the title certificate, which probably involves filing with a different state agency than the one for filing Financing Statements.



A Financing Statement expires five (5) years after filing unless renewed.

Foreclosure or realization upon the security taken is a complex process that is best undertaken under the advice of an attorney. Experienced business law attorney at Fresh Legal Perspective can help you with your UCC Article 9 Filing Needs.



This portion of the site is for informational purposes only. The content is not legal advice.