UCC Termination Statements, a Trap for the Unwary: Part Three
UCC
For the next several weeks, we welcome back guest author, attorney, Bennett L. Cohen to the FCS blog! Read on for the third installment in his blog series addressing the intricacies of UCC Termination Statements
UCC Termination Statements, a Trap for the Unwary: Part Three
Many secured parties who review UCC assignments from one secured party (an “assignor”) to another secured party (an “assignee”), just assume that the UCC assignment reflects a full assignment of the UCC filing from the assignor to the assignee, as opposed to a partial assignment of the UCC filing from the assignor to the assignee.
Many secured parties would be surprised to learn that UCC assignments need to be individually examined to evaluate whether the UCC assignment was in fact a full assignment or a partial assignment. Many UCC assignments are silent on their face about whether the UCC assignment in question is a full assignment or a partial assignment. In such case, a third party searcher in question who wants to make sure that all secured parties of record terminate an initial filing that has previously been assigned, will need to contact all secured parties of record in the chain of the UCC filing to confirm whether or not a full assignment was made. If a full assignment was not made from the first secured party to the second secured party, there are multiple secured parties of record, and they both need to authorize a termination of the initial financing statement.
Many filing offices leave the assignor as a secured party of record, after the filing of an assignment. This is a result of the filing offices’ limited discretion under Revised Article 9. As discussed below, the determination of whether an amendment reflects a full or partial assignment is entirely the searcher’s responsibility.
It should also be noted that under Code Section 9-514(a), the assignee may be named in the initial UCC filing itself (and thus no amendment is used), and in such case, such assignee is the “secured party of record” with respect to such UCC filing, and there is no ambiguity as to whether there is more than one secured party of record.
Another Code section dealing with UCC assignments is found in Code Section 9-514(b), which allows a secured party of record to assign all or part of its power to authorize an amendment to a financing statement. Similar to my comment in subsection (a) above, searchers would be put on inquiry notice upon reviewing such an assignment, as to exactly what security interest or powers were assigned.
Stay tuned for part four next week
About the Author
Bennett L. Cohenis a partner in the law firm of Cohen, Salk & Huvard, P.C. in Northbrook, Illinois, a Chicago suburb. Bennett regularly represents banks, commercial finance companies, insurance companies and other institutional lenders in the structuring, documentation and closing of commercial financing transactions, including asset-based loans, commercial loans, commercial real estate mortgage and construction loans, mezzanine loans, leveraged acquisitions, equipment lease loans and factoring transactions. Bennett is a member of the American Bar Association and serves on the ABA Committee on Commercial Financial Services and the ABA Subcommittees on Secured Lending, Loan Documentation and the Uniform Commercial Code. Bennett can be contacted at bcohen@cshlegal.com.