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Assignments and Security Interests Under UCC Article 9: A Worthy Decision

The March 2020 Commentary and its accompanying amendments to the Official Comments are critical steps in getting the commercial finance industry and, more importantly, courts aligned on how 9-406 and 9-607 work in concert.

December 16, 2022 at 10:30 AM

11 minute read

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The basic definitions of Article 9 align with this approach of applying to both an assignment of payment rights and a security interest in such assets. “[S]ecurity interest” in UCC Article 1, §1-201(b)(35) (General Definitions), includes “any interest of a … buyer of accounts, chattel paper, a payment intangible or a promissory note in a transaction that is subject to Article 9.” The definition of “secured party” in Article 9, §9-102(a)(73) (Definitions and Index of Definitions), includes a “person in whose favor a security interest is created or provided for under a security agreement,” as well as a “person to which accounts, chattel paper, payment intangibles or promissory notes have been sold.” Finally, the definition of “debtor” in Article 9, §9-102(a)(28), includes both a “person having an interest, other than a security interest or other lien, in the collateral” and a “seller of accounts, chattel paper, payment intangibles or promissory notes.”

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Ucc assignment and federal uspto assignment: one word, two meanings.

UCC Assignment and USPTO Assignment - Intellectual Property Due Diligence

Fairly frequently, I am asked the following question:

“Do assignment filings made with the USPTO have the same effect as assignment filings made under Article 9 of the Uniform Commercial Code?”

While in certain situations the answer is yes, the more helpful and short answer is no . UCC assignments are typically filed centrally or locally in each state, IP filings are made at the federal level. Moreover, the word ‘assignment’ may have a different meaning.

I’ll explore some of the similarities and differences between Article 9 assignments and assignments made with the U.S. Patent and Trademark Office (USPTO) to explain why.

What is an Assignment?

Let's start with setting the scope of what we mean by the term ‘assignment’. When used with respect to property, particularly in the legal world, assignment is defined as “the act of transferring an interest in property or some right (such as contract benefits) to another”.

UCC Assignment

Article 9 of the Uniform Commercial Code (UCC) allows a secured party (SP) to file assignments via UCC3 amendments. In the UCC Article 9 world, an assignment (UCC3) is linked to the initial financing statement (UCC1) in the public record so that the relationship between the two filings is clear. Both filings, the UCC1 and UCC3, are indexed together so that a search of the public record by a debtor name will reveal both the financing statement and the amendment in one search.

There are several types of UCC assignment filings a secured party may make with the appropriate central filing office and/or local filing office:

The secured party (assignor) may assign all of its rights to another party (assignee). (This is considered a full assignment.)
The secured party may assign the rights to some portion or percentage of all the collateral covered by the initial UCC financing statement to another party. (A partial assignment.)
The secured party may assign the rights of the 100% interest in a portion of the collateral to another party. (Also a partial assignment.)

USPTO Assignment

Like the rights to security interests that may be fully or partially assigned under the UCC, intellectual property (IP) , such as patents and trademarks, may also have ownership rights transferred in full or in part on the public record at the USPTO. In both cases, when an IP or UCC assignment filing is made, the filings end up in the public record so that searchers can find them.

At the USPTO, however, assignments and other changes are not directly linked on one index when searching by name, which is ordinarily how due diligence searching is conducted. A name search of the USPTO index will not yield one set of complete results containing both trademark applications and registrations and all trademark assignment filings. Separate searches are needed in different sections of the USPTO website. Once those searches are completed, a searcher may need to manually review the results in order to determine if there is a parent-child relationship between the records.

This is also important to note because an IP assignment can be filed before a patent is granted or a trademark application and registration appears on the USPTO records, because it might still be going through the review process at the USPTO.

On top of that, some filings categorized as ‘assignments’ at the USPTO, because they are indexed in the assignments database, are not assignments by definition. In other words, a filing on the USPTO assignment database may NOT be transferring rights in full or in part . This means that search results will include actual assignments and other records that are not assignments in the true sense of the rights of transfer.

USPTO Assignment Recordation Examples

So, what other filings are included as ‘assignments’ at the USPTO that are not really assignments? As an example, let’s say that the owner of IP changes their name while retaining ownership in their IP. Searching either of the assignment indexes at the USPTO may include name change results. Technically, this is not an assignment by definition – there was no transfer of rights – but the name change is filed on the assignment index. A security interest in IP is another example of a type of lien filing found on the USPTO assignments database but is not, by definition, an assignment.

Adding to the confusion, IP filers can choose to file using the option of ‘Other’ and can enter a conveyance type not already provided as a standard selection, which means that almost anything can be included on the ‘assignment’ records at the USPTO.

A Rule of Thumb for UCC and IP Assignments

The main point to take away from this discussion is that while assignments of UCCs are always assignments, assignments of IP are not as clear. Assignments of UCCs are always linked to the initial financing statements and are usually reflected in a single search, but assignments of IP filings are found on a different USPTO database from the trademark application and registration database, and patent grant and published pending patent databases, which all require separate searches (and thus, yield separate search results) on the USPTO website. It is necessary for the searcher to match up IP assignments to the parent record, if there is a parent record available.

The terminology may appear the same, but the meaning – and the search processes – for USPTO assignments and UCC assignments are completely different.

For insight on how intellectual property due diligence dovetails with more traditional types of searches, access our free webinar below:

This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Topics: Article 9 Filing, Searching and Due Diligence , UCC , Intellectual Property Due Diligence

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Business Law Today

December 2011

Keeping Current: Setting the UCC Record Straight on Mortgage Notes

Steven o weise.

Dec 31, 2011

When questions of ownership and enforcement of mortgage notes arise in proceedings of residential real estate foreclosures, the litigants and courts considering these matters don’t always recognize the applicability of the UCC.
The UCC Permanent Editorial Board issued a report describing the application of selected provisions in UCC Articles 3 and 9 to key issues regarding mortgage notes, in order to help practitioners and courts understand how the UCC governs this area.
The report addresses how the UCC governs the following matters: enforcing a mortgage note, transfer of ownership, the mortgage follows the note, recording the assignment of the mortgage.

The press is full of articles concerning residential real estate foreclosures. Sometimes questions arise in these judicial and non-judicial proceedings concerning ownership and enforcement of the notes and related mortgages. Uniform Commercial Code Articles 3 and 9 (and related definitions in Article 1) address some of the issues that have come up in these proceedings. The litigants and the courts considering these matters sometimes do not recognize the applicability of the UCC or may have difficulty applying the rules of the UCC. See, e.g., U.S. Bank v. Ibanez , 458 Mass. 637, 941 N.E.2d 40 (2011).

The Permanent Editorial Board for the Uniform Commercial Code has just issued a report (Report) to explain the application of UCC provisions that govern selected aspects of these matters and how those provisions apply to common fact patterns in this area. The PEB Report addresses how the UCC governs the following matters:

Who is the person entitled to enforce a mortgage note?
How is the transfer of a property interest (ownership or a security interest to secure an obligation) in a mortgage note accomplished?
What effect does the transfer of a mortgage note have on the related mortgage?
How can a person enforce a mortgage note by foreclosing non-judicially if the person does not have a recordable assignment of the mortgage?

The PEB prepared and issued a draft Report for public comment in March 2011. The PEB received comments and prepared revisions to the Report. The final Report was issued in mid-November. It is available on the webpages of the two sponsors of the UCC, the American Law Institute ( www.ali.org ) and the Uniform Law Commission ( www.uniformlaws.org ).

During the course of the comment period, at least two courts cited the draft Report when considering issues addressed by the Report. See In re Jackson , 451 B.R. 24 (Bankr. E.D. Calif. 2011) and In re Veal , 449 B.R. 542 (9th Cir. BAP 2011). In each case the court held for the homeowner, concluding that the person seeking to enforce the particular mortgage note had not satisfied the relevant requirements of the UCC, as explained in the (draft) PEB Report.

What the Report Does Not Cover

The Report limits its discussion to selected UCC issues:

The Report states several times that the UCC governs the issues that it governs, but does not address issues of real property law.
The Report sometimes refers to the UCC's use of other law in connection with the application of the UCC's rules, for example agency law. In those circumstances, the Report notes the applicability of the other law (such as agency law) but does not discuss the content of the other law. In particular, where the UCC requires "possession" of a note to create certain rights, the Report observes that both Article 3 and Article 9 (with an assist from UCC § 1-103(b)) recognize that possession of the note can occur through an agent.
The Report's discussion of Article 3 recognizes that Article 3 applies only to "negotiable instruments" as that term is defined in Article 3; the Report observes that if a mortgage note is not a "negotiable instrument," the Report's discussion of Article 3 issues does not apply to that mortgage note.
The Report's discussion of Article 9 issues notes that Article 9 applies to all instruments, i.e., both negotiable and non-negotiable notes.
The Report does not address all issues that might arise under the UCC in this context, such as the possible status of a holder of a mortgage note as a holder in due course of the mortgage note and the effect that that status might have on possible defenses that the maker might be able to assert.

Who is Entitled to Enforce a Mortgage Note?

Article 3 employs the concept of a "person entitled to enforce" a note to determine the person to whom the maker of the note owes its payment obligation. UCC § 3-301. That person might or might not be the owner of the note (UCC § 3-203, Comment 1), but payment to that person discharges the maker's obligation under the note. UCC §§ 3-412 and 3-602.

A person is the person entitled to enforce the note if any of the following is true:

The person is the "holder" of the note,
The person is in possession of the note, which was "transferred" to that person, but the person is not a "holder" of the note, and
The note has been lost or destroyed (or is unavailable for other reasons) and the person who had been in possession was a person entitled to enforce the note

These alternatives for becoming the person entitled to enforce the mortgage note are satisfied (or not) as follows:

The first alternative is satisfied only if the person (or its agent) has possession of the mortgage note and the mortgage note is payable or endorsed to that person or endorsed in blank.
The second approach also requires that the person (or its agent) has possession of the mortgage note. If the mortgage note is not payable to the person in possession or to bearer, then the person is not a "holder." However, if the mortgage note was "delivered" to the person in possession "for the purpose of giving" that person the right to enforce the instrument, the second alternative applies.
The third alternative requires proof of the elements noted above, along with the terms of the mortgage note.

Transfer of Ownership

Unlike Article 3, Article 9 applies to interests in both negotiable and non-negotiable instruments. UCC § 9-102(a)(47). Article 9 applies to both a security interest in a mortgage note to secure an obligation and to the rights of a buyer of a mortgage note. UCC § 9-109(a)(1) and (3). Article 9 thus determines the requirements for an "effective" transfer of rights in those two situations. UCC § 9-203.

The requirements for an effective transfer of ownership (in the case of a sale) or a security interest to secure an obligation (in the case of a loan secured by the mortgage note) are straightforward:

Value must be given--this is typically satisfied by the payment of the purchase price in the case of a sale of a mortgage note and the promise to make a loan or the advance of the loan amount in the case of a security interest to secure an obligation. UCC § 1-204.
The seller or person creating the security interest to secure an obligation must have "rights" in the mortgage note--this too is usually easy to satisfy.
Generally, the seller or person creating a security interest to secure an obligation must "authenticate" a security agreement describing the mortgage note. UCC § 9-203(b)(3)(A). Whether the agreement covers the sale of the mortgage note or a security interest to secure an obligation, the agreement sufficiently describes the mortgage note if the agreement "reasonably identifies" the mortgage note. UCC § 9-108(a). For example, a description of mortgage notes by "category" or "type" is sufficient. UCC § 9-108(b)(2) and (3). (An oral (or other unauthenticated) security agreement is also possible in some circumstances. UCC § 9-203(b)(3)(B)).

If these requirements are satisfied, the buyer or lender with a security interest in a mortgage note to secure an obligation obtains a property interest in the note as owner or holder of the security interest to secure an obligation.

The Mortgage Follows the Note

The law in the United States has long followed the Mary's Little Lamb rule--wherever the mortgage note goes the related mortgage is sure to follow. Restatement (Third) of Property (Mortgages) § 5.4. UCC § 9-203(g) codifies this rule for both sales of a mortgage note and a security interest in a mortgage note to secure an obligation. Further, perfection of a security interest in the mortgage note (whether in favor of a buyer or a lender with a security interest to secure an obligation) also perfects the security interest in the buyer's or lender's security interest in the seller's or borrower's rights in the mortgage. References to a "mortgage" in UCC § 9-203(g) include other types of consensual rights in real property to secure an obligation, such as a deed of trust. UCC § 9-102(a)(55).

Getting the Mortgage in the Secured Party's Name

To save effort and money for all concerned, often a buyer of a mortgage note or a lender with a security interest in the mortgage note to secure an obligation will not record an assignment of the mortgage in the real estate records. As Article 9 makes clear, recording an assignment is not necessary for the buyer or lender to perfect its rights in the seller's or borrower's rights in the mortgage.

However, if the buyer or lender wants to foreclose, it may not have and may not be able to obtain the documents necessary to record the assignment in the real estate records, which may be necessary under local real estate law. Article 9 provides a procedure for the buyer or lender to record a document in the real estate records to reflect that assignment. UCC § 9-607(b).

The PEB Report describes the application of selected provisions of UCC Articles 3 and 9 to several key issues that may come up in connection with mortgage notes. There may well be additional UCC issues or issues arising under other law that also must be resolved, but the Report should help both practitioners and courts understand many of the issues that the UCC addresses in this area.

Steven O. Weise, Partner, Proskauer Rose LLP, Los Angeles, CA Steven O. Weise is a partner in the corporate department and practices in all areas of commercial law. His experience in financing is extensive, especially in...

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Uniform Commercial Code

California code of regulations, title 2. administration, division 7. secretary of state, chapter 13. uniform commercial code, article 1. general provisions, article 2. acceptance and refusal of records, article 3. ucc information management system and electronic records.

Article 4. Filing and Data Entry Procedures
Article 5. Information Requests and Search Response

Article 6. Other Notices of Liens

22600. definitions..

"Address" means either (1) a street address, route number (may include box) or P.O. Box number plus the city, state and zip code, or (2) an address that purports to be a mailing address outside the United States of America.
"Amendment" means a UCC record that amends the information contained in a financing statement. Amendments include assignments, continuations and terminations.
"Assignment" is an amendment that assigns all or part of a secured party's power to authorize an amendment to a financing statement.
"Information Statement" means a UCC record that indicates that a financing statement is inaccurate or wrongfully filed.
"Filing Officer Statement" means a statement entered by the Secretary of State into the UCC information management system to correct an error made by the Secretary of State's office.
"Initial Financing Statement" means a UCC record containing the information required to be in an initial financing statement, and that causes the Secretary of State to establish the initial record of existence of a financing statement.
"Submitter" means a person who tenders a UCC record to the Secretary of State for filing, whether the person is a filer or an agent of a filer responsible for tendering the record for filing. "Submitter" does not include a person responsible merely for the delivery of the record to the Secretary of State, such as the postal service or a courier service but does include a service provider who acts as a filer's representative in the filing process.
"UCC" means the Uniform Commercial Code as adopted in this state.
"UCC record" means an initial financing statement, an amendment, an assignment, a continuation, a termination or a information statement and shall not be deemed to refer exclusively to paper or paper–based writings.
"UCC information management system" means the Secretary of State's electronic information management system including web-based electronic filing services provided by the Secretary of State for the direct entry, transmission and retrieval of UCC records and requests for information.

Note: Authority cited: Section 9526, Commercial Code. Reference: Section 9526, Commercial Code.

New chapter 13 (articles 1-6, sections 22600-22601.8), article 1 (sections 22600-22600.2) and section filed 6-21-2004; operative 6-21-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 26).
Amendment filed 5-29-2014; operative 7-1-2014 (Register 2014, No. 22).

22600.1. UCC Record Delivery.

Personal delivery at the Secretary of State's street address. The file time for a UCC record delivered by this method is when delivery of the UCC record is accepted by the Secretary of State (even though the UCC record may not yet have been accepted for filing and subsequently may be rejected).
Courier delivery at the Secretary of State's street address. The file time for a UCC record delivered by this method, notwithstanding the time of delivery, is the next close of business following the time of delivery (even though the UCC record may not yet have been accepted for filing and may be subsequently rejected).
Postal service delivery to the Secretary of State's mailing address. The file time for a UCC record delivered by this method is the next close of business following the time of delivery (even though the UCC record may not yet have been accepted for filing and may be subsequently rejected). A UCC record delivered after regular business hours or on a day the Secretary of State's office is not open for business will have a filing time of the close of business on the next day the Secretary of State's office is open for business.
Electronic filing. UCC records, excluding information statements, may be transmitted electronically using the XML format approved by the International Association of Commercial Administrators. At the request of an authorized XML submitter, the Secretary of State shall identify which versions and releases of the XML format are acceptable to the Secretary of State's UCC information management system. The Secretary of
State's office publishes an implementation guide that prescribes the use of the XML format. The implementation guide shall be available to the public upon request. The file time for a record delivered by this method is the time that the Secretary of State's UCC information management system analyzes the relevant transmission and determines that all the required elements of the transmission have been received in a required format and are machine readable. UCC records also may be transmitted electronically through online entry. The file date and time for a UCC record delivered by this method are the date and time that the UCC information management system receives it.
The appropriate fee shall be paid at the time a UCC record is submitted to the Secretary of State for filing. The methods of payment are United States dollars, check, money order, cashier's check, credit card, and a debit to a prepaid customer account established with the Secretary of State.

Note: Authority cited: Section 9526, Commercial Code. Reference: Section 9516, Commercial Code; and Section 12194, Government Code.

New section filed 6-21-2004; operative 6-21-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 26).

22600.2. Search Request Delivery.

UCC search requests may be delivered to the Secretary of State's office by any of the means by which UCC records may be delivered to the Secretary of State's office.

Note: Authority cited: Section 9526, Commercial Code. Reference: Section 9523, Commercial Code.

22600.3. Continuation Period for Financing Statements.

First day permitted. The first day on which a continuation may be filed is the date corresponding to the date upon which the financing statement would lapse, six months preceding the month in which the financing statement would lapse. If there is no such corresponding date the first day on which a continuation may be filed is the last day of the sixth month preceding the month in which the financing statement would lapse.
Last day permitted. The last day on which a continuation may be filed is the date upon which the financing statement lapses.

Note: Authority cited: Section 9526, Commercial Code. Reference: Section 9515, Commercial Code.

New article 2 (sections 22600.3-22600.5) and section filed 6-21-2004; operative 6-21-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 26).

22600.4. Procedure upon Refusal.

If the Secretary of State’s office finds grounds under Uniform Commercial Code section 9516 to refuse acceptance of a UCC record, the Secretary of State’s office shall return the record. Unless otherwise requested, the Secretary of State’s office may retain the fee pending resubmission of the record.

Note: Authority cited: Section 9526, Commercial Code. Reference: Sections 9516 and 9520, Commercial Code.

22600.5. Refusal Errors.

If a secured party or a submitter demonstrates to the satisfaction of the Secretary of State's office that a UCC record that was refused for filing should not have been refused, the Secretary of State's office will file the UCC record as provided in these rules with a filing date and time assigned when such filing occurs. The Secretary of State's office also will file a filing officer statement that states the effective date and time of filing which shall be the date and time the UCC record was originally tendered for filing.

Note: Authority cited: Section 9526, Commercial Code. Reference: Sections 9516, 9520 and 9526, Commercial Code.

22600.6. IACA Standard Adopted.

The XML standard adopted in this state for electronic transmission of UCC records is an XML format adopted by the International Association of Commercial Administrators and published on the Secretary of State's website.

Note: Authority cited: Section 9526, Commercial Code. Reference: Section 9516, Commercial Code.

New article 3 (sections 22600.6-22600.8) and section filed 6-21-2004; operative 6-21-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 26).
Amendment of article heading and section filed 5-29-2014; operative 7-1-2014 (Register 2014, No. 22).

22600.7. Record Filing Procedures.

UCC records may be submitted directly to the Secretary of State's office using the UCC information management system which can be accessed through the Secretary of State's website.
Record Indexing. A submitter may index a record into the UCC information management system by following the indexing procedures in the manner set forth in Section 22601 of these rules.
Filing Date. The filing date of a UCC record is the date the UCC record is received as described in subdivision of Section 22600.1.
Filing Time. The filing time of a UCC record is the time described in subdivision (a)(1)-(4) of Section 22600.1.

Note: Authority cited: Section 9526, Commercial Code. Reference: Section 9519, Commercial Code.

22600.8. Search Request Procedures.

Search requests may be submitted directly to the Secretary of State's office using the UCC information management system which can be accessed through the Secretary of State's website.

Article 4. Filing and Data Entry Procedures.

22600.9. errors of the secretary of state's office as the filing officer..

The Secretary of State's office may correct data entry errors of the Secretary of State's personnel in the UCC information management system at any time. If the correction is made after the Secretary of State has issued a certification date that includes the filing date of a corrected record, the Secretary of State's office shall proceed as follows. A filing officer statement record relating to the relevant initial financing statement will be placed in the UCC information management system on the date that the error was reported. The filing officer statement must provide the date of the correction and explain the nature of the corrective action taken. The record shall be preserved for so long as the record of the initial financing statement is preserved in the UCC information management system.

New article 4 (sections 22600.9-22601.1) and section filed 6-21-2004; operative 6-21-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 26).

22601. Data Entry of Names - Designated Name Fields.

Organization Names. Organization names are entered into the UCC information management system as set forth in the UCC record, even if it appears that multiple names are set forth in the record or it appears that the name of an individual has been included in the field designated for an organization name.
Individual Names. Individual names are entered into the UCC information management system as the first personal name, additional name(s)/initial(s), individual's surnames and any suffix, exactly as set forth on the UCC record.

Note: Authority cited: Section 9526, Commercial Code. Reference: Sections 9519 and 9521, Commercial Code.

Amendment of section and Note filed 5-29-2014; operative 7-1-2014 (Register 2014, No. 22).

Article 5. Information Request and Search Response.

22601.2. general requirements..

The Secretary of State's office maintains for public inspection a searchable index for all UCC records. The index shall provide for the retrieval of a record by the name of the debtor and by the file number of the initial financing statement, and each filed UCC record relating to the initial financing statement.

New article 5 (sections 22601.2-22601.6) and section filed 6-21-2004; operative 6-21-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 26).

22601.3. Search Requests.

Search requests shall contain the following information.

Name Searched. A search request shall set forth the name of a debtor to be searched and must specify whether the debtor is an individual or an organization. A search request will be processed using the name in the exact form it is submitted.
Requesting Party. A search request shall include the name and address of the person to whom the search report is to be sent.
Fee. The appropriate fee shall be paid at the time the request is submitted to the Secretary of State. The methods of payment are United States dollars, check, money order, cashier's check, credit card, and debit to a prepaid customer account established with the Secretary of State.
Search Request with Filing. A search request submitted at the time of filing a UCC record which names the same debtor as the filing document shall be deemed to request a search that would retrieve all financing statements filed on or prior to the date the UCC record is filed.

Note: Authority cited: Section 9526, Commercial Code. Reference: Sections 9523 and 9525, Commercial Code.

Amendment of subsections (c) and (d) filed 5-29-2014; operative 7-1-2014 (Register 2014, No. 22).

22601.4. Rules Applied to Search Requests.

Search results are produced by the application of standardized search logic to the name presented to the Secretary of State's office. Human judgment does not play a role in determining the results of the search. The following apply to searches:

There is no limit to the number of matches that may be returned in response to the search criteria.
No distinction is made between upper and lower case letters.
Punctuation marks and accents are disregarded.
Words and abbreviations at the end of a name that indicate the existence or nature of an organization are disregarded.
The word "the" at the beginning of the search criteria is disregarded.
All spaces are disregarded.
For first personal name and additional name(s)/initial(s) of individual names, initials are treated as the logical equivalent of all names that begin with such initials, and first personal name and no additional name(s)/initial(s) is equated with all additional name(s)/initial(s). For example, a search request for "John A. Smith" would cause the search to retrieve all filings against all individual debtors with "John" or the initial "J" as the first personal name, "Smith" as the surname, and with the initial "A" or any name beginning with "A" in the additional name(s)/initial(s) field. If the search request were for "John Smith" (first personal name and surnames with no designation in the additional name(s)/initial(s) field), the search would retrieve all filings against individual debtors with "John" or the initial J as the first personal name, "Smith" as the surname and with any name or initial or no name or initial in the additional name(s)/initial(s) field.
After using the preceding rules to modify the name to be searched, the search will reveal only names of debtors that are contained in unlapsed and lapsed financing statements and exactly match the names requested, as modified.
Amendment of subsection (g) filed 5-29-2014; operative 7-1-2014 (Register 2014, No. 22).

22601.5. Optional Information.

A UCC search request may contain any of the following information.

"The search results herein reflect only the specific information requested. The results of the debtor search will not reflect variances of this name. If the debtor is known under other personal names, trade names, business entities, or addresses, separate searches of these names will have to be requested and conducted. The Secretary of State, his officers and agents disclaim any and all liability for a claim resulting from other filings on which the name of the debtor can be found in any other form than that which was requested."

The request may ask for copies of UCC records identified on the search response.
The request may include instructions on the mode of delivery desired, if other than by ordinary mail, which request will be honored if the requested mode is available to the Secretary of State's office.
Copies of unrelated records may be requested by providing the specific file numbers. The Secretary of State's office may limit the number of records that may be accepted in a single search request.

Note: Authority cited: Section 9526, Commercial Code. Reference: Sections 9523 and 9526, Commercial Code.

22601.6. Search Responses.

Reports created in response to a search request shall include the following:

Filing officer. Identification of the Secretary of State and the certification of the Secretary of State required by law.
Report Date. The date the report was generated.
Name Searched. Identification of the name searched.
Certification Date. The certification date and time for which the search is effective.
Identification of initial financing statements. Identification of each unlapsed and lapsed initial financing statement filed on or prior to the certification date and time corresponding to the search criteria, by name of debtor, by identification number, and by file date and file time.
History of Financing Statement. For each initial financing statement on the report, a listing of all related UCC records filed by the Secretary of State's office on or prior to the certification date.
Copies. Copies of all UCC records revealed by the search and requested by the searcher.

22601.7. Treatment of Other Liens.

The liens identified in Section 22601.8 also are filed with the Secretary of State pursuant to statutes other than the UCC. The liens are treated by the Secretary of State's office substantially the same as financing statements and are included on search responses pursuant to Commercial Code Section 9528.

Note: Authority cited: Section 9526, Commercial Code. Reference: Section 9528, Commercial Code.

New article 6 (sections 22601.7-22601.8) and section filed 6-21-2004; operative 6-21-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 26).
New section heading and amendment of section filed 5-29-2014; operative 7-1-2014 (Register 2014, No. 22).

22601.8. Types of Liens.

Judgment Liens pursuant to the Code of Civil Procedure Sections 697.510-697.670.
Attachment Liens pursuant to the Code of Civil Procedure Sections 488.300-488.485 and 488.500-488.510.
Federal Tax Liens pursuant to the Code of Civil Procedure Sections 2100-2107.
State Tax Liens pursuant to the Government Code Sections 7170-7174 and 7220-7229.

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U.C.C. - ARTICLE 5 - LETTERS OF CREDIT (1995)

Primary tabs.

§ 5-101 . Short Title.
§ 5-102 . Definitions.
§ 5-103 . Scope.
§ 5-104 . Formal Requirements.
§ 5-105 . Consideration.
§ 5-106 . Issuance, Amendment, Cancellation, and Duration.
§ 5-107 . Confirmer, Nominated Person, and Adviser.
§ 5-108 . Issuer's Rights and Obligations
§ 5-109 . Fraud and Forgery.
§ 5-110 . Warranties.
§ 5-111 . Remedies.
§ 5-112 . Transfer of Letter of Credit.
§ 5-113 . Transfer by Operation of Law.
§ 5-114 . Assignment of Proceeds.
§ 5-115 . Statute of Limitations.
§ 5-116 . Choice of Law and Forum.
§ 5-117 . Subrogation of Issuer, Applicant, and Nominated Person.
§ 5-118 . Security Interest of Issuer or Nominated Person.
TRANSITION PROVISIONS
§ 5-101. Short Title.
§ 5-102. Definitions.
§ 5-103. Scope.
§ 5-104. Formal Requirements.
§ 5-105. Consideration.
§ 5-106. Issuance, Amendment, Cancellation, and Duration.
§ 5-107. Confirmer, Nominated Person, and Adviser.
§ 5-108. Issuer's Rights and Obligations
§ 5-109. Fraud and Forgery.
§ 5-110. Warranties.
§ 5-111. Remedies.
§ 5-112. Transfer of Letter of Credit.
§ 5-113. Transfer by Operation of Law.
§ 5-114. Assignment of Proceeds.
§ 5-115. Statute of Limitations.
§ 5-116. Choice of Law and Forum.
§ 5-117. Subrogation of Issuer, Applicant, and Nominated Person.
§ 5-118. Security Interest of Issuer or Nominated Person.

N.Y. Uniform Commercial Code Law Section 2-210 Delegation of Performance

Assignment of Rights

Source: Section 2-210 — Delegation of Performance; Assignment of Rights , https://www.nysenate.gov/legislation/laws/UCC/2-210 (updated Sep. 22, 2014; accessed Jun. 15, 2024).

Accessed: Jun. 15, 2024

Last modified: Sep. 22, 2014

§ 2-210’s source at nysenate.gov

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In this example, (3) , (4) , and (4)(a) are all outline levels, but (4) was omitted by its authors. It's only implied. This presents an interesting challenge when laying out the text. We've decided to display a blank section with this note, in order to aide readability.

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Assignment of Rents & Leases vs UCC

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#1684690 - 04/02/12 03:19 PM
Posts: 44	Last edited by Flippy; 04/02/12 04:14 PM.

Lending Compliance

#1684769 - 04/02/12 04:56 PM Flippy
Posts: 20,656	- Stone Sour

#1684777 - 04/02/12 05:06 PM Flippy
Posts: 4,617

#1684812 - 04/02/12 05:54 PM Cowboys Fan
Posts: 3,070	That is the also the way I understand it. We don't file a UCC but always record a separate Assignment of Rents and Leases. We utilize an Assignment of Rents and Leases form that was provided to us by our legal counsel. You should contact your legal counsel for guidance.

#1684871 - 04/02/12 07:09 PM Flippy
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Frost Brown Todd

When Your Vendor’s Lender Demands You Pay It Instead of Your Vendor

A traditional balance scale with empty pans against a blue background.

Apr 22, 2020

Categories:

Blockchain and Banking Blog Blogs Coronavirus Response Team

Vincent E. Mauer

A commercial lender’s favorite collateral is often a borrower’s accounts receivable. This collateral is the building block of countless revolving lines of credit that provide borrowers with working capital and flexibility. Lenders prefer accounts receivable as collateral because it is similar to cash, unlike collateral that must be fed and liquidated (assets that must be insured, stored, marketed and sold). Additionally, the Uniform Commercial Code (“UCC”) permits lenders to collect accounts receivable directly from the borrower’s customers without using judicial process, thus saving time and money. [1]

After a loan agreement “goes bad” and the lender declares a default, the lender’s options for collection of accounts receivable collateral include giving notice to persons whose accounts owed to a borrower were pledged by that borrower to the lender (the borrower’s customer is a “payor”), [2] that is, accounts receivable in which the lender has a UCC Article 9 Security interest. [3] The primary operative provision is UCC 9-406, which states in part:

Subject to subsections (b) through (i), an account debtor on an account , chattel paper , or a payment intangible may discharge its obligation by paying the assignor [borrower] until, but not after, the account debtor receives a notification, authenticated by the assignor or the assignee that the amount due or to become due has been assigned and that payment is to be made to the assignee. After receipt of the notification, the account debtor [ payor] may discharge its obligation by paying the assignee [Lender] and may not discharge the obligation by paying the assignor [Borrower] .
Subject to subsection (h), notification is ineffective under subsection (a): (1) if it does not reasonably identify the rights assigned; (2) . . . [a limitation applicable to payment intangibles that are not accounts receivable, for example insurance settlements]; or (3) at the option of an account debtor, if the notification notifies the account debtor to make less than the full amount of any installment or other periodic payment to the assignee, even if: (A) only a portion of the account , chattel paper , or payment intangible has been assigned to that assignee; (B) a portion has been assigned to another assignee; or (C) the account debtor knows that the assignment to that assignee is limited. [4]
Subject to subsection (h), if requested by the account debtor [ payor], an assignee [lender] shall seasonably furnish reasonable proof that the assignment has been made . Unless the assignee complies, the account debtor may discharge its obligation by paying the assignor, even if the account debtor has received a notification under subsection (a).

(Emphases added.) Ordinarily, the above-quoted statute means that, after a borrower defaults, the lender can give a “notification” to its borrower’s customers ( payors) [5] and demand that amounts owed to the borrower instead be paid to the lender if the lender has a perfected security interest in its borrower’s receivables.

There are a few common concerns faced by our payor clients who receive notifications from their secured vendor’s secured lenders.

The first thing a payor must understand is that neither (a) the borrower’s granting of a security interest in its accounts receivable, nor (b) a lender’s notification under UCC 9-406, will change the amount owed, the terms of the account debt, or the payor’s rights such as a discount for returned merchandise or prompt payment. A payor who receives a lender’s notification should, therefore, take a deep breath and determine exactly what is owed to the vendor that granted the security interest to the lender.

In my experience, payors who receive a lender’s notification nearly always choose to alert their vendor (the lender’s borrower) of the notification. The statute neither permits nor prohibits such action. Typically, the payor’s communication is, in part, an effort by the payor to (i) alert its vendor that a payment may not be coming, (ii) assess the vendor’s stability so the payor can determine if it needs to find a new source for the goods and services supplied by the vendor, and (iii) to seek information on whether the lender’s notification is real and appropriate.

Contacting the vendor is understandable. It is natural for a payor to seek information from the party with whom it regularly does business rather than a probable stranger, the lender. Vendor-provided information, however, comes with a caveat: If the vendor asserts that the lender’s notice to the payor is in error and should be ignored, the payor accepts that advice at its own risk. The UCC provision quoted above clearly states that a payor who has received an appropriate lender’s notification cannot discharge its debt to the vendor by paying the vendor instead of the lender.

Rather, or in addition to, contacting the vendor, a payor can choose to contact the lender and request evidence that payment to the lender is appropriate. In this event, the UCC requires the lender to provide “reasonable proof that the assignment was made.” This usually means evidence that the vendor granted a security interest to the lender and that the accounts receivable created by the payor’s debt to the vendor is covered by that security interest. A payor should take advantage of this opportunity to communicate with the lender and request “proof,” if either (a) the vendor asserts that the lender’s notice to payor is wrongful, or (b) the lender’s “notification” seems inadequate. This is a proper response to payor’s concerns. [6]

In my experience, lenders often ignore a payor’s request for “proof” following a lender’s “notification.” There are many possible reasons for this inaction by the lender. [7] Whatever the rationale, however, the result is the same. According to UCC 9-406 comment 4:

[e]ven if the proof is not forthcoming, the notification of assignment would remain effective, so that, in the absence of reasonable proof of the assignment, the account debtor could discharge the obligation by paying either the assignee or the assignor. Of course, if the assignee [lender] did not in fact receive an assignment, the account debtor [ payor] cannot discharge its obligation by paying a putative assignee who is a stranger [a fraudster] .

(Emphasis added). Given the last sentence in this comment, the only safe action by payor is payment to the vendor, not the lender, if the lender failed to respond to payor’s request for “proof.”

As noted above, the lender’s notification to payor does not alter the terms of the payor’s obligations to the vendor. For example, if a payor has received a notification from a lender and has requested reasonable proof of the assignment, payor may discharge its obligation by paying the assignor at the time when payment is due, even if the account debtor has not yet received a response to its request for proof. This is a warning for lenders to think about their borrower’s collection cycle when sending notifications to payors.

If a payor deals with a large vendor or one with diverse operations, the vendor may have more than one secured lender. Vendors can have two or more secured creditors each with a security interest in the vendor’s accounts payable. [8] Sophisticated payors will often discover this fact when they do an online search with the appropriate Secretary of State’s office. Unfortunately, the UCC’s official commentary is silent on the payor’s duties in this situation. See, however, comment 7 to UCC 9-406:

For example, an assignor [vendor] might assign the same receivable to multiple assignees [. . . .] Or, the assignor could assign the receivable to assignee-1, which then might re-assign it to assignee-2, and so forth. The rights and duties of an account debtor in the face of multiple assignments and in other circumstances not resolved in the statutory text are left to the common-law rules. See, e.g., Restatement (2d), Contracts Sections 338(3), 339.

When faced with this problem, counsel must determine which state’s common law applies and find the non-UCC answer from applicable law.

Finally, clients often ask whether a particular lender notification is an appropriate and effective “authenticated” notification. The answer depends on the circumstances of the notification. Fortunately, there are plenty of court decisions that can provide guidance on this question. One example is Swift Energy Operating, LLC v. Plemco-South Inc. , 157 So.3d 1154 (La. Ct. App. 2015), where a borrower did business with an account receivable factor, the secured party. The borrower and factor sent an email to the payor which was the alleged lender notification under Louisiana’s version of UCC 9-406. In response to that email, the payor’s employee directed the lender to contact the payor’s appropriate office. The payor’s employee, however, did not sign and return the acknowledgment that payor received the lender’s notification. The lender subsequently failed to contact the payor’s accounts payable office as directed and the payor paid its obligation to the vendor rather than the lender/account receivable factor. Litigation was initiated in an effort to determine if payor was nonetheless liable to the lender for failure to follow the lender’s notification.

The Louisiana Court of Appeals held that the email was not an “authenticated” notification in compliance with the statute. The court reasonably held that the required notice must be directed to the appropriate payor department or employee when the lender has notice of that department. The court ruled:

[W]e find that the notice required by La.R.S. 10:9-406(a) was not effected prior to Swift Energy’s payment to Plemco–South. Given the size of its operation, we find that Swift Energy maintained reasonable routines for communicating significant information through its departmentalization policy, and both Factor King and Plemco–South were timely made aware of the proper department for delivery of the required notice. Had either Ms. Gleberman or Mr. Stigall followed Ms. Keo’s instruction, notice would have been effected to the appropriate department well before the payment to Plemco–South at issue.

Id. at 1164.

The UCC’s provision for nonjudicial collection of accounts receivable collateral is important and valuable to lenders. Unfortunately, it regularly raises questions and concerns for recipients of lender notifications. Experienced counsel can help their payor clients resolve concerns, determine who to pay, and possibly smooth any tensions between the payor and its vendor by demonstrating that the payor exercised every opportunity to protect the vendor before paying the lender.

For more information, please contact Vince Mauer or any attorney in Frost Brown Todd’s Financial Services industry team.

[1] This post does not address a lender’s efforts to control accounts receivable collateral while the lending relationship is intact, such as use of a lockbox to receive payments and control over the borrower’s bank accounts into which the accounts receivable payments are deposited by the borrower (whether by check or wire transfer).

[2] For purposes of this blog post, I will use the term “Payor” for the borrower’s customer who owes money to the borrower and whose debt to borrower is subject to a security interest in favor of the lender. This blog post is written from a Payor’s perspective.

[3] A warning for lenders: According to the Ohio Supreme Court, this remedy is not fully available against the collateral of a borrower whose customer, the Payor, is a government entity. See MP Star Financial Inc. v. Cleveland State Univ. , 837 N.E.2d 758 (Ohio 2005) ( “provision of UCC making an account debtor liable to an assignee of accounts receivable, for payments made to assignor after receiving notice of assignment, does not apply to payments made by an account debtor that is a governmental unit.”).

[4] Under subsection (b)(3), an account debtor that is notified to pay an assignee less than the full amount of any installment or other periodic payment has the option to treat the notification as ineffective, ignore the notice, and discharge the assigned obligation by paying the assignor [vendor]. This is a convenience for Payors and a warning to lenders.

[5] For the typical recipient of this notice (a Payor), the borrower whose account was assigned is a vendor, a business that sells goods or services to you and grants its lender a security interest in the account receivable generated by that sale.

[6] Comment 3 to UCC 9-406 states: “[i]f an account debtor [Payor] has doubt as to the adequacy of a notification, it may not be safe [for the Payor] in disregarding the notification unless it [Payor] notifies the assignee [lender] with reasonable promptness as to the respects in which the account debtor considers the notification defective.” So, a Payor with concerns may be better off to seek information from the lender rather than making its own decision concerning the adequacy of the notification.

[7] I have occasionally counseled lender clients to ignore a Payor’s request for “proof.” The reasons for this advice are beyond the scope of this blog post.

[8] Hopefully, there is an Intercreditor Agreement addressing lien priorities and which lender(s) can send a lender notification.

Before you send us any information, know that contacting us does not create an attorney-client relationship. We cannot represent you until we know that doing so will not create a conflict of interest with any existing clients. Therefore, please do not send us any information about any legal matter that involves you unless and until you receive a letter from us in which we agree to represent you (an "engagement letter"). Only after you receive an engagement letter will you be our client and be properly able to exchange information with us. If you understand and agree with the foregoing and you are not our client and will not divulge confidential information to us, you may contact us for general information.

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What Is a UCC-3 Filing and Why Should You File One?

Have you filed a UCC-1 to secure your interest in certain collateral? Well, if you have and you need to continue, amend, assign, or terminate your UCC filing, you will file a UCC-3. You may have already guessed, but today’s post is all about the UCC-3, including its magical powers. OK, it may not be magical per se, but it is certainly powerful and shouldn’t be ignored.

UCC-1, UCC-3, UCC-5, UCC-11

It may seem like an odd numbering system, but each form is important in its own right. A UCC-1 is the initial Financing Statement and is filed to provide notice to other creditors of your security interest. Typically, when we talk about perfecting your security interest or filing a UCC, we are usually referring to a UCC-1 or your initial filing.

Let’s skip the UCC-3 for now and jump ahead to the UCC-5 and the UCC-11. A UCC-5 is an information statement you file when you believe an existing record is inaccurate or was wrongfully filed. In compliance with Article §9-518 , this statement should include reference to the original filing (the filing with the alleged errors). It should indicate it is an information statement and it should identify what you believe to be inaccurate in the original filing. It’s important to note, this filing does not amend any information – you will need to file the UCC-3 if you need to amend info.

The UCC-11 is an information request to determine whether there are other secured parties, whether specific collateral is already secured by a UCC, and to determine a creditor’s priority.

Bouncing back to the UCC-3.

A UCC-3 Wears Many Hats

It’s true, a UCC-3 is used to continue your existing filing, amend your existing filing, terminate your existing filing, or assign your interest to another secured party.

Continuation

A UCC is effective for 5 years. If you need to extend the filing, you will file a UCC-3 Continuation within 6 months before the expiration date of the existing filing. Once the continuation has been filed, your UCC is effective for another 5 years. If you don’t file your continuation timely, your UCC will become ineffective.

How often should you continue a filing? It depends on what you are providing as the creditor. If you are a lender, and your customer’s loan period is longer than 5 years, you would need to file continuations every 5 years until the loan is paid off/closed, to maintain your security. If you are a distributor of goods, and your customer operates on a revolving line of credit with you, you should file a continuation every 5 years as your relationship continues.

I’m going to repeat what I just said moments ago: if you do not file a continuation timely, your existing UCC will become ineffective. And, as we’ve discussed on our blog before, you can’t revive your security interest; you will lose your place in line.

Ah, UCC Amendments, let me count the ways! Why would you need to amend your UCC? The most common reasons to amend a filing include a change in your customer’s name or address, a change in your company’s name or address, or a change in the collateral.

The most common, and arguably most critical, reason to amend your filing is if your customer’s name or address changes. We talk about this a lot, because not only is it vital to your security interest, it’s also one that consistently stymies creditors . Article §9-507(c) clearly states you have a 4-month window to amend your filing for a debtor name change to maintain your priority. If you fail to timely amend your filing, your filing will be considered seriously misleading, and your security interest will be unperfected. Remember, names matter in UCCs, after all, a search by name is how parties identify whether a security interest already exists on certain collateral.

I mentioned you may want to amend a filing if your company’s name or address changes, and while this is not dictated by Article 9, it is a best practice. I recommend amending the filing to alleviate delays or missed notifications about a debtor’s bankruptcy. For example, let’s say your customer files for bankruptcy. The bankruptcy trustee will go through public records (i.e., UCC filings) to ensure notifications of the bankruptcy – including the mega important bar date info – are mailed to all parties. If your address is wrong and the mail is either delayed or returned, you could miss the bar date. Yes, you could likely argue you missed the bar date because you didn’t receive timely notification, but the court may say “Hey, not my problem, you should have maintained the public record.” Is it worth the hassle?

If there is a change in the collateral, you will need to amend your filing. Other creditors are relying on the information you provide to determine whether an interest already exists on certain collateral. If your Financing Statement doesn’t correctly identify the collateral, other creditors can assume there is collateral available for them to use as security – keep it current, don’t let that happen.

If you need to assign or transfer all or some of your rights to the collateral to another secured party, you will file an Assignment.

9-514 Assignment of Powers of Secured Party of Record

(b) [Assignment of filed financing statement.]

Except as otherwise provided in subsection (c), a secured party of record may assign of record all or part of its power to authorize an amendment to a financing statement by filing in the filing office an amendment of the financing statement which:

(1) identifies, by its file number, the initial financing statement to which it relates;

(2) provides the name of the assignor; and

(3) provides the name and mailing address of the assignee.

Assignments occur frequently with banks, as one bank transfers its security to another bank.

Termination

Seems fitting to end today’s post with Terminations. The filing of a termination ceases the effectiveness of the original UCC. Typically, terminations are filed at the end of the relationship when monies have been paid and/or collateral returned. As an example, your bank filed a UCC when you signed for your car loan; once your car loan is paid off, the bank terminates their UCC, which frees up the collateral (i.e., your car).

Use caution when terminating filings because you can’t un-terminate them. If you need a billion dollar warning, check out How JP Morgan Chase Bank’s Billion Dollar Mistake Can Make You a Better Credit Manager .

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Assignment Under UCC

This article was edited and reviewed by FindLaw Attorney Writers | Last reviewed March 26, 2008

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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw’s team of legal writers and attorneys and in accordance with our editorial standards .

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Copelco Capital, Inc. v. Packaging Plus Services, Inc. , 1997 WL 633893 (N.Y.A.D. 10/14/97). ASSIGNMENT - UCC Â§9-206(1) states that an agreement by a buyer or lessee that he will not assert any claim or defense he may have against the seller or lessor against the seller's/lessor's assignee is enforceable IF the assignee takes assignment for value, in good faith, and without notice of a claim or defense by the buyer/lessee. This case, in which the assignee was protected, is mainly notable as a reminder that some true lease protections actually exist outside of Article 2A.

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Risk & Compliance

How New York UCC, Article 9, applies to the sale and purchase of accounts receivable

August 2019 | EXPERT BRIEFING | BANKING & FINANCE

financierworldwide.com

The sale of accounts receivable is a viable option for sellers to increase cash flow. Likewise, purchasing accounts receivable at a discount can be a good business opportunity. When buying accounts receivable, purchasers must comply with Article 9 of the New York Uniform Commercial Code (UCC) in order to record the change in ownership.

This article explores the methods by which a party can sell (assignor) its accounts receivable (debt) to a purchaser (assignee) and mitigate future risks associated with non-payment by the party obligated to pay into the account (debtor).

Introduction: application of the UCC to assignments

Determining who owns an account receivable can be difficult because accounts are intangible in nature. Article 9 of the UCC protects purchasers of accounts receivable by providing a method to record ownership. Recording the sale of the receivable is accomplished by filing a UCC financing statement. The filing serves multiple purposes. It can be used to show ownership and require payment from the debtor, provides notice of sale to other creditors and can be used to defeat or rank competing claims to the same account in bankruptcy.

Article 9 states that a purchaser or assignee receives a “security interest” through assignment. This may raise concerns for a buyer that wants to obtain full rights in the accounts receivable and not just a security interest, which is commonly given to secure a loan but does not include enforcement rights until a default. In addition, the sale of an account is recorded in the same manner as a security interest serving as collateral, namely, by filing a UCC-1 financing statement. However, according to the official comments to the UCC, despite the somewhat confusing language, the assignee in fact obtains full ownership over the account receivable it purchases. Use of terminology such as “security interest” is merely a drafting convention, and “has no relevance in distinguishing sales from other transactions”.

Assignability of a debt (i.e., accounts receivable)

General conditions of the UCC Article 9. There are three general conditions, outlined below, that must be satisfied to effect the sale of an account receivable under Article 9.

First, assignment must fall within the scope of “account”: An “[a]ccount… means a right to payment of a monetary obligation whether or not earned by performance: … for services rendered or to be rendered”. A debt which relates to the provision of goods, and not just services, also satisfies the conditions necessary to effect assignment of a debt. While the definition of “account” under the UCC does not explicitly include goods, the official comment provides that the definition of “account” is not limited to just “goods or services”, rather, the definition has “expanded”.

Second, when purchasing accounts receivable or debts for goods sold, the filing of a UCC financing statement (UCC-1) by the purchaser is mandatory.

Third, notice to the debtor may be given. If the assignee decides that it wants the debtor to pay it directly, then notice to the debtor is required under the UCC. Without notice, the debtor “may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification”. Notice is often not provided until there is a default by the assignor because companies often sell their accounts receivable and continue to collect the amounts due from customers on behalf of the assignee. This is often done because the assignor does not want its customers to know it is using accounts receivable to finance its business. Furthermore, the assignor may have a better ability to collect due to close business ties.

Effect of contractual anti-assignment provisions. A party to a contract may want to prohibit assignment for a variety of reasons. However, New York generally favours assignments. In fact, under New York law, while violation of contractual language prohibiting assignment or requiring the approval of one party may trigger a breach of contract by the assignor, this does not invalidate the transfer. In order to make an assignment ineffective, contractual language must be very explicit, such as a provision stating that any attempted assignment is “void”.

The UCC provides additional protection to accounts receivable, in that anti-assignment provisions are ineffective if they attempt to restrict the sale or grant of a security interest in an account. Thus, accounts receivable may be sold despite contractual restrictions prohibiting such transfers.

Validity of an assignment

Legal requirements for valid assignment. In general, “a security agreement is effective according to its terms between the parties, against purchasers of the collateral, and against creditors”. A security interest (i.e., assignment) is enforceable if value was given, the assignor had the authority to transfer its rights in the collateral to the secured party and the assignor authenticated a security agreement that provides a description of the collateral (defining “authenticate” as “to sign, or with present intent to adopt or accept a record, to attach to or logically associate with the record an electronic sound, symbol, or process” such as an electronic signature).

The term security agreement is defined in the UCC as “an agreement that creates or provides for a security interest”. As discussed, the term “security interest” is a UCC drafting convention and is not distinguished from a sale.

Validity of assignment of part of a debt. Partial assignments are valid and enforceable. H Co., Ltd. v. Michael Kors Stores, LLC (2009) found that “an assignment may be for ‘a part only of the designated payment’”. In addition, Terino v. LeClair (1966) found that “debt which was partially assigned was to be created and payment was to become due in the future did not render equitable assignment invalid”.

Rights and title that passes from the assignor to the assignee. When assignment is performed correctly, the assignee receives all rights, title and interest possessed by the assignor with respect to the debt (i.e., accounts receivable). The assignor will have no remaining power over, or interest in, the debt.

As per the UCC, the assignee receives unencumbered rights as existing under the original contract and those arising from the original transaction. The rights of an assignee are subject to: (i) all terms of the agreement between the account debtor and assignor and any defence or claim in recoupment arising from the transaction that gave rise to the contract; and (ii) any other defence or claim of the account debtor against the assignor which accrues before the account debtor receives a notification of the assignment authenticated by the assignor or the assignee.

In addition, the purchaser of the debt takes the debt subject to previously recorded sales or filed financing statements conveying or covering the same debt. For example, financing banks often take a security interest in all of a debtor’s property, including accounts. If the description in the prior-filed financing statement covers “accounts” of the assignor “generally”, the assignee will need to obtain an intercreditor agreement subordinating the financing bank’s interest in the account or the assignee’s interest will remain subject to the prior-filed security interest of the financing bank.

The assignee may assign the debt to another party. The new assignee will have the same rights, privileges, and interest in the debt. Further, “[i]f a secured party assigned a perfected security interest, a filing [of a UCC financing statement] is not required to continue the perfected status of the security interest against creditors of and transferees from the original debtor”. However, it is good practice to file an amendment identifying the new secured party or owner of the receivable.

Automatic assignment of future debts. The UCC provides that, subject to certain exceptions, a security agreement may create a security interest in after-acquired collateral, and may provide that accounts are sold in connection with future advances. Accordingly, so long as the description in the financing statement continues to accurately describe the collateral (i.e., the debt), no new filing is required. Therefore, the assignee may specify in its assignment agreement with the assignor that future debts are assigned to the assignee “as they arise” or similar language.

Perfection, priority and notice of assignment

What to file . New York requires the filing of form UCC-1, financing statement. A financing statement must have the assignor’s proper corporate name (not the trade name), the assignee’s name, and an indication of the collateral (i.e., the debt and the specific account receivable). The UCC indicates that financing statements should contain: the assignor’s address, whether the assignor is an individual or organisation, registration numbers and the assignee’s address. A financing statement is effective for five years and may be renewed for an additional five years.

Where to file . Under the UCC, the general rule is that the place for filing is a debtor’s location. However, in the context of assignment, location of the debtor does not affect the validity of the financing statement. Rather, it is the location of the assignor that is important. If the assignor is a corporation or similar corporate entity, filing must be done in the state of incorporation. If the assignor is an individual, then in the state of the assignor’s residence. If the assignor is an unincorporated business, then in the state of the assignor’s principal place of business or chief executive office. Generally, financing statements are filed with the Secretary of State’s office in the appropriate jurisdiction. In addition, any person can file a financing statement if the assignee authorises the filing in an authenticated (signed) record or agreement.

How long to file. Generally, there is no time period within which a security interest must be perfected by filing the financing statement. However, New York follows the “first in time, first in right” rule. Thus, the assignee’s security interest should be perfected as soon as possible to prevent another purchaser or creditor from priming the assignee’s security interest.

Preservation of assignment rights in bankruptcy

Importance of perfection for bankruptcy. In the event of bankruptcy by either the debtor or assignor, whether or not a debt has been perfected will play a critical role in determining the value of a claim against the debtor’s estate. The assignee, in effect, stands in the shoes of the assignor. Therefore, if neither the assignee nor the assignor have perfected their security interest against the debtor, then the assignee will be an unsecured creditor in the debtor’s bankruptcy.

In the event that the assignor declares bankruptcy and the assignee has not filed appropriate financing statements, the accounts sold to the assignee may become an asset of the debtor’s estate. In this scenario, the assignee is an unsecured creditor. If, however, the assignee has filed the appropriate financing statement conveying the accounts were sold to the assignee, the accounts are not considered property of the debtor or its bankruptcy estate.

The sale of receivables is a common way for businesses to finance ongoing operations including the purchase of inventory. If the proper formalities are followed, a purchaser can be reasonably assured that they have priority to, and ownership of, the account receivable.

John Kissane is a partner and Sabih Siddiqi and Celinda Metro are associates at Watson Farley & Williams LLP. Mr Kissane can be contacted on +1 (212) 922 2200 or by email: [email protected]. Mr Siddiqi can be contacted on +1 (212) 922 2200 or by email: [email protected]. Ms Metro can be contacted on +1 (212) 922 2200 or by email: [email protected].

John Kissane, Sabih Siddiqi and Celinda Metro

Watson Farley & Williams LLP

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Uniform Commercial Code

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The ucc today, article 1, general provisions.

Uniform Commercial Code Article 1 contains definitions and general provisions applicable as default rules to transactions covered under other articles of the UCC. Article 1 was last revised in 2001, with a few minor amendments since then to harmonize with recent revisions of other UCC articles. View Article 1, General Provisions

Article 2, Sales

Uniform Commercial Code Article 2 governs the sale of goods. It was part of the original Uniform Commercial Code approved in 1951. Article 2 represented a revision and modernization of the Uniform Sales Act, which was originally approved by the National Conference of Commissioners on Uniform State Laws in 1906. The Uniform Law Commission and American Law Institute approved a revised Article 2 in 2003 that was not adopted in any state, and was subsequently withdrawn by both organizations in 2011. Thus the 1951 version of Article 2 is the most recent official version. View Article 2, Sales

Article 2A, Leases

Uniform Commercial Code Article 2A governs leases of personal property. It was first added to the Uniform Commercial Code in 1987 and amended in 1990. A revision was approved by the Uniform Law Commission and the American Law Institute in 2003, but was not adopted in any jurisdiction and subsequently withdrawn by both organizations in 2011. Thus, the 1987 version of Article 2A, as amended in 1990, remains the official text. View Article 2A, Leases

Article 3, Negotiable Instruments

Uniform Commercial Code Article 3 governs negotiable instruments: drafts (including checks) and notes representing a promise to pay a sum of money, and that have independent value because they are negotiable. An instrument is negotiable if it can be transferred to another person and remain enforceable against the person who originally made the promise to pay. The substance of Article 3 has its roots in the Negotiable Instrument Law first approved by the National Conference of Commissioners on Uniform State Laws in 1896. That early uniform law was revised and incorporated into the original version of the UCC in 1951, and a further revision was approved in 1990. Finally, a set of amendments to UCC Articles 3 and 4 was approved in 2002. View Article 3, Negotiable Instruments

Article 4, Bank Deposits and Collections

Uniform Commercial Code Article 4 governs bank deposits and collections, providing rules for check processing and automated inter-bank collections. Article 4 was completely revised in 1990 and amended in 2002. View Article 4, Bank Deposits and Collections

2002 Amendments to Article 3, Negotiable Instruments and Article 4, Bank Deposits

These 2002 amendments to Uniform Commercial Code Articles 3 and 4 update provisions dealing with payment by checks and other paper instruments to provide essential rules for new technologies and practices in payment systems. View Article 3, Negotiable Instruments and Article 4, Bank Deposits, Amendments to

Article 4A, Funds Transfers

Uniform Commercial Code Article 4A provides a comprehensive body of law on the rights and obligations connected with fund transfers. It was added to the UCC in 1989. View Article 4A, Funds Transfers

2012 Amendments to Article 4A, Funds Transfers

These 2012 Amendments to Section 108 of Uniform Commercial Code Article 4A provide that Article 4A applies to a remittance transfer that is not an electronic funds transfer under the Federal Electronic Funds Transfer Act (EFTA). The amendment was necessary to conform the UCC with the federal law and associated regulations. View Article 4A, Amendments to

Article 5, Letters of Credit

Uniform Commercial Code Article 5 governs letters of credit, which are typically issued by a bank or other financial institution to its business customers in order to facilitate trade. Article 5 was updated in 1995 to address advances in technology and modern business practices. View Article 5, Letters of Credit

Article 6, Bulk Sales

Uniform Commercial Code Article 6 covers bulk sales - a topic many states have determined is obsolete. The original version of Article 6 was withdrawn by the Uniform Law Commission and the American Law Institute in 1989 and replaced with two options for every state to consider: replace Article 6 with a revised version 6, or repeal Article 6 entirely. The ULC recommends repeal, and nearly every state has followed that recommendation. View Article 6, Bulk Sales

Article 7, Documents of Title

Uniform Commercial Code Article 7 covers documents of title for personal property, including warehouse receipts, bills of lading, and other documents typically used for commercial trade. Revised Article 7, approved in 2003, updates the original version to provide a framework for the further development of electronic documents of title, and to update the article in light of state, federal and international legal developments. View Article 7, Documents of Title

Article 8, Investment Securities

Uniform Commercial Code Article 8 provides a modern legal structure for the system of holding securities through intermediaries. The 1994 revision sets forth rules concerning the system through which securities are held, specifying the mechanisms by which ownership and other interests in securities are recorded and changed, and setting out some of the rights and duties of the parties who participate in the securities holding system. View Article 8, Investment Securities

Article 9, Secured Transactions

Uniform Commercial Code Article 9 provides a statutory framework that governs secured transactions--transactions that involve the granting of credit secured by personal property. Each state maintains an office for filing finance statements to publicly disclose security interests in encumbered property. A substantial revision to Article 9 was completed in 1998 and adopted in all states. The article was further amended in 1999, 2000, 2001, and 2010. View Article 9, Secured Transactions

2010 Amendments to Article 9, Secured Transactions

Uniform Commercial Code (UCC) Article 9 governs secured transactions in personal property. The 2010 Amendments to Article 9 modify the existing statute to respond to filing issues and address other matters that have arisen in practice following a decade of experience with the 1998 version. Most significantly, the 2010 Amendments provide greater guidance as to the form of the name of an individual debtor to be provided on a financing statement. View Article 9, Secured Transactions, Amendments to

2018 Amendments to 9-406 and 9-408 of UCC Article 9, Secured Transactions

Amendments to UCC Article 9 Sections 9-406 and 9-408 modify the anti-assignment override provisions, thereby excluding security interests in ownership interests of general partnerships, limited partnerships, and limited liability companies from the override provisions. View UCC Article 9, Secured Transactions, Amendments to 9-406 and 9-408

Article 12 and the 2022 Amendments

The 2022 amendments to the Uniform Commercial Code address emerging technologies, providing updated rules for commercial transactions involving virtual currencies, distributed ledger technologies (including blockchain), artificial intelligence, and other technological developments. The amendments span almost every article of the UCC and add a new Article 12 addressing certain types of digital assets defined as “Controllable Electronic Records” (CERs). The amendments provide new default rules to govern transactions involving these new technologies and clarify the UCC’s applicability to mixed transactions involving both goods and services. The amendments also contain some miscellaneous revisions unrelated to technological developments but providing needed clarification. View UCC, 2022 Amendments to

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COMMENTS

§ 2-210. Delegation of Performance; Assignment of Rights
Uniform Commercial Code § 2-210. Delegation of Performance; Assignment of Rights. ... An assignment of "the contract" or of "all my rights under the contract" or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a ...
§ 9-514. Assignment of Powers of Secured Party of Record
An assignment of record of a security interest in a fixture covered by a record of a mortgage which is effective as a financing statement filed as a fixture filing under Section 9-502(c) may be made only by an assignment of record of the mortgage in the manner provided by law of this State other than [the Uniform Commercial Code].
U.c.c.
restrictions on assignment of promissory notes, health-care-insurance receivables, and certain general intangibles ineffective. § 9-409. restrictions on assignment of letter-of-credit rights ineffective. part 5. filing [subpart 1. filing office; contents and effectiveness of financing statement] § 9-501. filing office. § 9-502. contents of ...
UCC Forms: What You Need to Know
Unlike a UCC 1, a UCC-3 can be used for multiple purposes. The actions one can take are Amendment, Assignment, Continuation, and Termination. Four types of UCC-3 forms: 1. Amendment. An amendment makes changes to errors or standard adjustments on the UCC-1, which could be for the secured party, debtor or collateral. 2. Assignment
Assignments and Security Interests Under UCC Article 9: A Worthy
The basic definitions of Article 9 align with this approach of applying to both an assignment of payment rights and a security interest in such assets. " [S]ecurity interest" in UCC Article 1 ...
§ 5-114. Assignment of Proceeds.
Uniform Commercial Code § 5-114. Assignment of Proceeds. § 5-114. Assignment of Proceeds. (a) In this section, "proceeds of a letter of credit" means the cash, check, accepted draft, or other item of value paid or delivered upon honor or giving of value by the issuer or any nominated person under the letter of credit.
§ 9-406. Discharge of Account Debtor; Notification of Assignment
(2) provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the account, chattel paper, payment intangible, or promissory note.
UCC Assignment Definition
Related to UCC Assignment. IP Assignment a collateral assignment or security agreement pursuant to which an Obligor grants a Lien on its Intellectual Property to Agent, as security for the Obligations.. Lease Assignment has the meaning set forth in Section 3.5(d).. Loan Assignment has the meaning set forth in the Purchase and Sale Agreement.. First Assignment means: the relevant Assignment ...
UCC Assignment and Federal USPTO Assignment: One Word, Two Meanings
UCC Assignment. Article 9 of the Uniform Commercial Code (UCC) allows a secured party (SP) to file assignments via UCC3 amendments. In the UCC Article 9 world, an assignment (UCC3) is linked to the initial financing statement (UCC1) in the public record so that the relationship between the two filings is clear.
Commercial, Sample Agreement
In the following sample document, the underlying agreement being assigned is a commercial sale of goods contract. Accordingly, the agreement is subject to the Uniform Commercial Code - Sales (UCC) in lieu of ordinary rules on assignment and assumption. The principal governing provision is UCC § 2-210, which broadly reflects the common law.
Keeping Current: Setting the UCC Record Straight on Mortgage Notes
UCC § 9-102 (a) (47). Article 9 applies to both a security interest in a mortgage note to secure an obligation and to the rights of a buyer of a mortgage note. UCC § 9-109 (a) (1) and (3). Article 9 thus determines the requirements for an "effective" transfer of rights in those two situations. UCC § 9-203.
PDF Instructions for UCC Financing Statement Amendment (Form UCC3)
Electronic UCC ﬁling parameters and instructions may diﬀer from the below instructions. Send completed form and any attachments to the ﬁling oﬃce, with the required fee. ... Assignment. To assign (1) some or all of Assignor's right to amend the identi ﬁed ﬁnancing statement, or (2) the Assignor's right to amend the identi ﬁed ...
Uniform Commercial Code :: California Secretary of State
"Assignment" is an amendment that assigns all or part of a secured party's power to authorize an amendment to a financing statement. ... "UCC" means the Uniform Commercial Code as adopted in this state. "UCC record" means an initial financing statement, an amendment, an assignment, a continuation, a termination or a information statement and ...
U.C.C.
§ 5-114. Assignment of Proceeds. § 5-115. Statute of Limitations. § 5-116. Choice of Law and Forum. § 5-117. Subrogation of Issuer, Applicant, and Nominated Person. § 5-118. Security Interest of Issuer or Nominated Person.
PDF The Impact of an Effective Notice of Assignment under UCC 9-406
The Impact of an Effective Notice of Assignment Under UCC-9-406. In a March 2018 decision, the United States Court of Appeals for the Ninth Circuit issued an opinion in United Capital Funding Corp. v. Ericsson Inc. (unpublished opinion No. 16-35442, filed March 29, 2018) that discusses the effectiveness of a Notice of Assignment (herein ...
Uniform Commercial Code Law Section 2-210
Section 2--210. Delegation of Performance; Assignment of Rights. (1) A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract.
Assignment of Rents & Leases vs UCC
By having a separate assignment and filing you could begin the process much earlier. That is the also the way I understand it. We don't file a UCC but always record a separate Assignment of Rents and Leases. We utilize an Assignment of Rents and Leases form that was provided to us by our legal counsel.
When Your Vendor's Lender Demands You Pay It Instead of Your Vendor
Whatever the rationale, however, the result is the same. According to UCC 9-406 comment 4: [e]ven if the proof is not forthcoming, the notification of assignment would remain effective, so that, in the absence of reasonable proof of the assignment, the account debtor could discharge the obligation by paying either the assignee or the assignor.
What Is a UCC-3 Filing and Why Should You File One?
A UCC-3 Wears Many Hats. It's true, a UCC-3 is used to continue your existing filing, amend your existing filing, terminate your existing filing, or assign your interest to another secured party. Continuation. A UCC is effective for 5 years. If you need to extend the filing, you will file a UCC-3 Continuation within 6 months before the ...
Assignment Under UCC
ASSIGNMENT - UCC Â§9-206 (1) states that an agreement by a buyer or lessee that he will not assert any claim or defense he may have against the seller or lessor against the seller's/lessor's assignee is enforceable IF the assignee takes assignment for value, in good faith, and without notice of a claim or defense by the buyer/lessee.
How New York UCC, Article 9, applies to the sale and purchase of
The UCC provides additional protection to accounts receivable, in that anti-assignment provisions are ineffective if they attempt to restrict the sale or grant of a security interest in an account. Thus, accounts receivable may be sold despite contractual restrictions prohibiting such transfers.
How to Attach and Perfect a Security Interest Under the UCC
Attachment of a security interest. Under the UCC, in order for a creditor to become a secured party—that is, a party with a legal right to take possession of the collateral if the debtor fails to pay—the creditor must take special steps (discussed below). These steps are known as "attachment of a security interest."
Uniform Commercial Code
The Uniform Commercial Code (UCC) is a comprehensive set of laws governing all commercial transactions in the United States. It is not a federal law, but a uniformly adopted state law. ... Amendments to UCC Article 9 Sections 9-406 and 9-408 modify the anti-assignment override provisions, thereby excluding security interests in ownership ...