The purpose of perfection is to provide the searcher of notice. Consequently, it is very important for the searcher to know which state to look for potential secured interests. This also means that it is important for the secured party to file within the correct jurisdiction at the outset of the transaction.
The UCC is adopted on a state level. As such this might provide complications as to whose law is going to apply. However, each state has adopted §§ 9-301 through 9-307, which are Article 9’s choice of law statutes. In other words, the UCC has resolved the choice of law issues when it comes to perfection and every state has adopted those rules.
It is also important to note that these choice of law rules apply only to the perfection step. States may have different choice of law rules for attachment and enforcement.
The Rules
The main choice of law rule in the perfection step is found in 9-301(1). That is, the location of the debtor governs the perfection step. 9-307 defines the location of the debtor: 1) individual is at their place of residence 2) a business is going to be the principal place of business, state of incorporation, or the headquarters. There are exceptions for these rules based on collateral. These exceptions are found in §§ 9-303 (certificate of title), 9-304 (deposit accounts), 9-305 (investment property), and 9-306 (letter-of-credit rights).
However, other exceptions may apply (focusing on the collateral location rather than the debtor’s location). This applies when the secured party takes possession of the collateral (9-301(2)), the collateral is a fixture (9-301(3)(A)), or when the collateral is timber (9-301(3)(B)).
So, our steps for analysis is to determine what the collateral is. Second, determine what methods that collateral can be perfected. Third, determine where choice of law applies based on possession or filing.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
