United States of America: Reconsidering the Transaction Document Filing Requirement for National Registry

Charles W. Mooney Jr.


This National Report for the United States of America (USA) has benefited greatly from the General Report chapter by Professor Souichirou Kozuka. The report adopts the terminology mentioned in the About This Book section of this book and used in the General Report chapter.[1] The report first generally outlines secured transactions law in the USA. It then discusses the Cape Town Convention and, in particular, the Aircraft Protocol and their relationship to USA law. The United States ratified the Convention and Aircraft Protocol in 2004 and these instruments entered into force on March 1, 2006. The discussion of the Cape Town Convention generally follows the structure suggested by the national questionnaire for jurisdictions that are parties to the Convention.

Background: Secured Transactions Law in the USA

In the USA’s federal system secured transactions law is primarily state law—primarily Article 9 of the Uniform Commercial Code (“UCC”). Each state has enacted a substantially uniform version of UCC Article 9.

Article 9 applies to any transaction that creates a security interest in personal property (i.e., movables).[2] A “security interest” is a unitary concept that embraces transactions in any form (e.g., possessory pledges or title-reservation agreements) in which personal property (the “collateral”) secures an obligation.[3] It also applies to outright transfers (sales) of most receivables.[4] A security interest becomes enforceable (“attaches”) when a debtor (a person with rights in the collateral or power to transfer rights) enters into a security agreement creating a security interest and value is given (e.g., a loan made by the secured party to the debtor).[5] In general a security interest becomes effective against most third parties when it becomes “perfected.”[6] Perfection occurs when a security interest has attached and one of several applicable perfection steps have been taken.[7] The most common and generally applicable perfection steps are the filing in a public office of a financing statement[8] and the secured party’s taking possession of the collateral (as to collateral that is capable of being possessed, such as goods (tangible movables) or negotiable instruments).[9]

Financing statements are to be filed in a central filing office in each state, usually the office of the state’s Secretary of State.[10] A financing statement must contain the name of the debtor, the name of the secured party, and a description of or indication of the collateral that it covers.[11] (Also, unless a financing statement contains certain additional information (e.g., addresses of the parties) it may be rejected by the filing office.[12]) Financing statements are indexed against,[13] and searchable by,[14] the name of the debtor. Inasmuch as a financing statement reflects only limited and very basic information, the Article 9 filing system often is referred to as a “notice filing” system.[15]

The basic priority rule as between competing Article 9 security interests is the so-called “first-to-file-or-perfect” (“FTFOP”) rule.[16] For example, suppose SP-1 files a financing statement against a debtor at Time 1 (T-1) covering certain collateral. Then, SP-2 files at T-2 and a security interest attaches in favor of SP-2 to the same collateral on that date. At T-2, SP-1 does not have any interest in the collateral so competing security interests do not exist. However, now suppose that at T-3 a security interest in the collateral attaches in favor of SP-1. Although SP-2’s security interest was the first to be perfected, SP-1 was the first to file. SP-1 has priority under the FTFOP rule. SP-2 should have searched the filing office records, discovered SP-1’s filing, and refused to proceed in the face of SP-1’s earlier filed financing statement. The FTFOP rule applies irrespective of a secured party’s knowledge of a competing interest.

Article 9 also provides several priority rules that are exceptions to the FTFOP rule. For example, qualifying purchase-money security interests are afforded priority even if a financing statement perfecting a competing security interest has been filed first.[17]

Perfected security interests generally have priority over later-in-time judicial lien creditors.[18] That priority also extends over a debtor’s trustee in bankruptcy, which has the rights of a hypothetical judicial lien creditor at the time a bankruptcy case is opened.[19] Innocent buyers and lessees of collateral for value and which receive delivery of the collateral, as well as licensees of collateral, generally take free of unperfected security interests but subject to perfected security interests.[20] In addition, a buyer in ordinary course of business of goods takes free of a security interest even if it is perfected,[21] but a buyer does not qualify if, e.g., it knows that the sale violates the rights of another person as to the goods.[22]

After a default (the definition of which is left to the parties[23]) a secured party is entitled to take possession of collateral that is capable of being possessed[24] and to dispose of the collateral (as by sale, lease, or other disposition) in a commercially reasonable manner after giving reasonable notice to the debtor and other interested persons.[25] A secured party may take possession of collateral without judicial process if it can do so without a breach of the peace.[26] After default a secured party also is entitled to collect and enforce receivables and other intangible collateral.[27]

UCC Article 9 contains its own internal set of choice-of-law rules. The general rule is that perfection and priority are governed by the local law of the jurisdiction in which a debtor is located.[28] However, for tangible collateral capable of being possessed, perfection and priority with respect to a possessory security interest are governed by the local law of the location of the collateral[29] and for non-possessory security interests priority is governed by the local law of the location of the collateral.[30]

  • [1] See General Report [3].
  • [2] UCC § 9-109(a)(1). C.W. Mooney Jr. (*) University of Pennsylvania Law School, University of Pennsylvania, Philadelphia, PA, USAe-mail: This email address is being protected from spam bots, you need Javascript enabled to view it © Springer International Publishing AG 2017 197 S. Kozuka (ed.), Implementing the Cape Town Convention and the DomesticLaws on Secured Transactions, Ius Comparatum - Global Studies inComparative Law 22, DOI 10.1007/978-3-319-46470-1_11
  • [3] UCC § 1-202(b)(35) (defining “security interest”).
  • [4] UCC § 9-109(a)(3).
  • [5] UCC § 9-203(a), (b).
  • [6] See, e.g., UCC § 9-317.
  • [7] UCC § 9-308(a).
  • [8] UCC § 9-310(a).
  • [9] UCC §§ 9-310(b)(6); 9-313.
  • [10] See UCC § 9-501(a)(2).
  • [11] UCC § 9-502(a); 9-504.
  • [12] UCC § 9-516(b); UCC § 9-520(a).
  • [13] UCC § 9-519(c).
  • [14] UCC § 9-523(c).
  • [15] UCC § 9-502, official comment 2.
  • [16] UCC § 9-322(a)(1).
  • [17] UCC § 9-324.
  • [18] UCC § 9-317(a)(2).
  • [19] 11 U.S.C. § 544(a)(1).
  • [20] UCC §§ 9-201(a); 9-317(b) - (d).
  • [21] UCC § 9-320(a).
  • [22] UCC § 1-201(b)(9) (defining “buyer in ordinary course of business”).
  • [23] UCC § 9-601, official comment 3.
  • [24] UCC § 9-9-609(a).
  • [25] UCC §§ 9-610; 9-611-9-614.
  • [26] UCC § 9-609(b).
  • [27] UCC § 9-607.
  • [28] UCC § 9-301(1).
  • [29] UCC § 9-301(2).
  • [30] UCC § 9-301(3)(C).
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