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Risk Management Blog

UCC & Corporate Due Diligence

Resource Guide for Legal and Financial Professionals

UCC Q&A with Attorney Bennett Cohen


Do you have UCC questions?  Attorney Bennett Cohen of Illinois law firm Cohen, Salk & Huvard, P.C., has the answers. You may also want to check out his eBook on Purchase Money Security Interests (PMSI).

Question: Interplay between Inventory and Accounts—Can a prior UCC filing against a debtor’s inventory prime a lender’s subsequent UCC filing against the debtor’s accounts?

Answer: Yes. Since accounts are “proceeds” of inventory and a secured party is given an automatic security interest in “proceeds” of collateral it files against (subject, however, to various Code rules governing priority in “proceeds”), the first UCC filer against either inventory or accounts will have a first priority security interest in the accounts.

Question: Unauthorized UCC Terminations—When a lender finds a prior filed UCC termination in a UCC search reflecting termination by a prior secured party, can such termination be relied upon as an effective termination?

Answer: No. In order for a filed UCC termination to be an effective termination, the UCC termination must either have been filed by the secured party itself or the secured party must have authorized the filer, in a separate writing, to terminate such UCC filing. It is a business risk for a lender to assume that all prior UCC terminations are effective terminations. Stated another way, if a filed UCC termination was not filed
by the secured party itself or was not authorized to be filed in a separate writing by the secured party, the underlying UCC remains an effective filing, notwithstanding the filed termination.




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