What is a UCC 1 Funding Statement

Reservation of title and assignment of claims in the USA

Securing means

In the USA, a claim can be achieved through what is known as a security interest. The authoritative law for security funds in the USA is Art. 9 Uniform Commercial Code (UCC), which practically serves as a model law for the individual US states. In case of doubt, the corresponding rules of the respective state apply. Most states have implemented the UCC regulations into their law. Which state is responsible in detail depends on the seat of the security provider. The security interest does not require that the collateral taker, as in the case of German collateral property, does not acquire direct or indirect possession of the collateral. Unlike the German security property, the security interest is in most cases publicly registered by a so-called UCC-1 Financing Statement, which is referred to as perfection. The security interest arises on the thing through attachment and usually becomes effective through perfection. A public registration is not necessary when taking possession of the security item, security rights to fixed assets and so-called purchase money security interest of consumer goods, receivables and bills of exchange.

The registration of the security interest can be viewed in the online register of the Department of State of the country in which the protection provider is domiciled, Division of Corporation, State Records & UCC. This enables potential security buyers to check in advance whether security rights are registered for the security item.


A security interest in an item arises from the agreement of the parties, performance of the security buyer by the security buyer and the security seller's right of disposal. If there is an agreement, performance and right of disposal, the security interest is attached. The effective agreement is reached through the conclusion of a security agreement.

Security agreement

From a formal point of view, the contract must always be in writing. However, since the latest amendment to the law, a contract is also permitted in electronic form.

The security agreement does not have to be signed in electronic form.

Insofar as the contract is drawn up in writing, this requires a signature by the guarantor and buyer.

Furthermore, the law sets certain content-related requirements for the contract. First of all, the names of the protection seller and buyer must be given. Furthermore, the contract must clearly express the security obligation to be justified (justification of the obligation), whereby it must be made clear that the security order is made as consideration for a loan that has been granted. In addition, it must be made clear that the collateral provider has a right to the collateral, i.e., in the case of a PMSI, ownership of the purchased item. Furthermore, the law prescribes that the contract must identify the object of sale. A detailed description in the sense of the principle of certainty known from German property law is not required. However, the law forbids very general formulations, so that the security thing should be described in detail. In addition to the mandatory content, it is advisable to include certain other points in the contract in order to prevent any later disputes. These are the following:

- Information obligations with regard to any further security on the security item.

- Information obligations with regard to any registrations under public law.

- Duty to provide information with regard to any changes of address or name as well as with regard to any transfer of the security item.

- Obligation to maintain the item to be secured in a certain condition and to insure the item to be secured.

- Clarification of the question of who has to bear any taxes on the security item.

- Duty to defend yourself against any claims by third parties with regard to the security item.

- Clarification of the question of whether and, if so, under what circumstances the security provider is authorized to resell the security item.

- Clarification of the question of who has to bear the costs of the registration under public law.

- Obligation of the protection seller to bear the legal costs of the protection buyer.

In addition, any rights and powers of the collateral taker can be contractually stipulated. This is, for example, a right to investigate the security item. In the absence of provisions in the UCC, the security agreement should specify when the debtor (security seller) is in default or when there is non-performance.

According to the law, the security interest in proceeds continues for a period of 20 days, which the security seller achieves by selling or renting the security item. In view of the limited period of time, the security interest in the security agreement and filing should extend to the proceeds. Then the security interest in the proceeds continues beyond the 20 days.

A security agreement can also be agreed for goods that are still to be acquired (after acquired property). Furthermore, it can also be agreed that the security item should secure future loans from the security provider (future credits).

Furthermore, violations of the other obligations of the collateral provider are typically linked. With regard to the actual exploitation, the right of access and exploitation can again be positive. However, since the legal regulations are detailed in this context, a reference to the UCC of the respective federal state is generally sufficient with regard to the utilization. Nevertheless, individual detailed questions in connection with the right of access and exploitation can be modified in favor of the collateral taker.

The existence of a security agreement can be assumed based on the circumstances. In the decision in the reNumeric decision the existence of a security agreement was assumed by the deciding court, although the actual contract document could not be presented. Rather, the court concluded from the overall circumstances that a contract had to exist between the parties (485 F. 2d 1328, 13 UCC 416 (1st Cir. 1973)).

Although the law in almost all states is uniformly based on the UCC, there is no uniform legal situation due to various reservations and divergent case law. Contracts to provide collateral are often made based on New York State law. Because New York State law is most appropriate to the needs of international trade. The legal department of the AHK USA - New York supports German companies in drawing up security agreements.

Perfection / Filing

So that the security interest against third parties, such as other creditors, can be enforced in the event of debtor bankruptcy, the so-called perfection is carried out on the security item. Perfection can be achieved in five ways. In principle, the security interest is publicly registered with the competent authority. The competent authority is the Department of State, Division of Corporation and is either in the state in which the security provider is located or in which the security item is located. A financing declaration (UCC Financing Statement) containing the names and addresses of the security providers and buyers as well as a description of the security item is submitted to the authorities; this is referred to as filing

A registration under public law of security interests in consumer goods, with which the purchase price claim is to be secured, is unnecessary. Consumer goods are intended for private consumption (personal use). As soon as something can be assigned to business operations, registration under public law is required.

Protection against third parties is also possible without submitting a financing statement if the financing is indicated by a security agreement. Filing is also possible before the attachment if the guarantor has previously approved the filing in writing. In some states, when security interests are granted to vehicles, the security interests must be entered in the certificate of title. Taking possession of the security item has the same effect as filing. The security interest is perfected at the time of taking possession, in the case of indirect possession by means of a written confirmation of the possession for the security buyer by the property agent. In the case of money or securities, it is even mandatory to take possession of it to protect against access by third parties; an entry is not sufficient here. Taking possession is generally the exception; In business practice, it is about the debtor being able to work with the secured goods.

A security interest in fixed assets is perfected through control, e.g. transfer of account ownership.

Purchase price claims for consumer goods, receivables and bills of exchange are secured by a so-called purchase money security interest (PMSI). In the case of the PMSI, the security interest is immediately considered to be perfected at the time of the attachment. The PMSI is effective for five years. An extension is possible, whereby a so-called continuation statement must be submitted to the responsible authority.

Although filing is not necessary in all cases for perfection, filing should generally be carried out to facilitate the presentation of evidence and enforcement of the security interest against other collateral takers. Filing can also be carried out before the attachment. This is recommended with a view to securing the recycling priority.

Rights of the collateral taker vis-à-vis third parties

In principle, one thing can be used several times as security against different collateral takers.

The security interest on a security item expires if the item is handed over to a buyer for consideration before Perfection without knowledge of the lien. In the case of a PMSI that is attached but not perfected, the security buyer has 20 days to maintain his security right through Perfection after receipt and payment of the goods by the third party buyer.

The parties often agree on a so-called resale agreement in such a way that the collateral provider is authorized to resell the collateral.

If, on the other hand, no such authorization has been agreed, the third-party buyer will usually acquire an item encumbered with the PMSI. However, there is an exception if the third-party buyer has acquired the security item "in the ordinary course of business". This is the case if the third-party buyer does not know that the item sold to him is encumbered with the PMSI and the seller is commercially involved in the sale of the item in question. In addition, the third-party buyer can also purchase the security item free of charge if the third-party buyer is a consumer.

Court lien

As a rule, the legal lien only takes precedence over the judicial lien if it is perfected at the time of the foreclosure order. Holders of PMSI have priority over court liens if the PMSI is already attached and perfected within 20 days of the foreclosure order.

The question under which conditions a foreclosure creditor can obtain a lien is regulated in the civil procedure codes of the respective federal states. In many states, a case law has emerged that an effective PMSI takes precedence over later individual enforcement measures.

Exploitation right

In the event of non-fulfillment or default of the purchase price payment obligation by the security seller, PMSIs give the security buyer a right to access and exploit the security item.

The right of access allows the collateral taker to take the collateral in the event of realization. The collateral taker can initially and actually take possession of the collateral (self-help repossession). Here, however, the law stipulates that this must be done in an amicable way (without breach of the peace), which, according to the general opinion, is not the case if the occupation takes place against the will of the collateral provider. As a rule, the collateral taker must enforce his claims in court as part of a so-called Replevin Action.

As soon as the security taker has acquired possession of the security item, he can dispose of the item. The type and manner of realization is fundamentally at the discretion of the collateral taker. He is free to choose whether to sell the security item privately or to have it auctioned publicly. The only requirement in this context is that the recovery is economically reasonable.

The right of access and exploitation described above is stipulated by law in the event of non-compliance (default).


In the event of insolvency, the collateral taker is initially prevented from exercising his right of access and exploitation. In contrast to the German retention of title, the collateral taker does not have a right of segregation, which enables him to request the collateral from the bankruptcy estate in advance. Rather, in the event of insolvency, the insolvency administrator is even authorized to liquidate the security item in the ordinary course of business. It is therefore often necessary for the collateral takers to enforce their rights in court. Suretyship

The so-called suretyship exists in the USA as a counterpart to the German guarantee and assumption of debt. As a primary, direct and unconditional obligation, the suretyship is on a par with the main debt. Liability is jointly and severally and strictly accessory.

Letter of credit

The negotiable letter of credit (Commercial Letter of Credit-CLC) and the so-called standby letter of credit each represent a variant of the documentary letter of credit. A documentary letter of credit is issued by a credit institution (letter of credit) on behalf of the importer undertaken obligation to pay or credit the exporter a currency-related amount of money within a certain period of time against delivery of the contractually agreed documents. Since the exporter only sends his goods after opening and presenting the letter of credit, he secures his claim in this way.

The negotiable letter of credit secures the promise of payment by the bank issuing the credit. This bank undertakes to pay bills of exchange drawn (drafts) drawn by the beneficiary named on the letter of credit (on the bank issuing the credit or on a third party) without recourse to the issuer (beneficiary of the credit) and / or bona fide holders, provided that the required documents are presented and the conditions of the credit are met. Standby letters of credit are used as instruments similar to guarantees. In the pure form of the standby letter of credit, the payment of the opening bank is triggered by a written statement from the beneficiary or a third party.

Both forms of the Letter of Credit are based on Art. 5 UCC. The obligation arising from them is abstract and has to be provided on the basis of a mere formalized submission of the documents.

Assignment of claims

The assignment of claims is based on case law; In some cases it was also codified in dispositive law (e.g. in UCC § 2-210). The assignment of claims takes place through a contract between the assignor and the assignee. In this contract, the assignor undertakes to transfer the rights specified in the contract directly to the assignee. There are basically no formal requirements; Exceptions are: the written form requirements for salary assignments, assignments of property rights, claims for the sale of goods in excess of US $ 500 and securities claims in excess of US $ 5,000 as well as security assignments under Art. 9 UCC. Since this is dispositive law, a strict ban on assignment is often agreed in contracts.

By assigning the claim, the assignor loses all claims against the debtor, which are now exclusively due to the assignee. If the assignor cancels the assignment or assigns the claim again, this is also effective. In the case of multiple assignments, the assignee who asserts his rights first has priority; the UCC allows a different priority regulation when registering the assignment.

The debtor can raise objections against the assignor to the assignee insofar as they arise from the contract itself, but also other objections (e.g. offsetting) insofar as they were acquired before the debtor was aware of the assignment. Up to this point in time, a discharging payment to the old believer is also possible.

In principle, all rights from a contract can be assigned. This is only not possible if the content of the service would change with the assignment. Insofar as Art. 2-306 UCC does not allow a contract adjustment, the content of the contractual service changes, e.g. in the case of personally rendered, unjustifiable services and, under certain circumstances, requirements and output contracts, according to which the entire needs of the contracting party are covered orthe entire production of the debtor is to be accepted. In addition, the assignment is not possible even if the assignment would significantly increase the risk of the debtor.

Contractual assignment bans generally have no effect on third parties, so that the assignment is effective even in the event of a corresponding violation and claims for damages may arise. Unless otherwise agreed, the assignor is not liable for the performance of the third-party debtor. Partial assignment is possible.

The assignment of salary claims is usually subject to legal restrictions.

The assignment of claims is a popular financing instrument in the context of so-called factoring. Outstanding debts are not borrowed here, but assigned to commercial finance companies against a discount. This form of financing offers companies an alternative to taking out a loan from a commercial bank.

Assumption of debt

Assumption of guilt is generally possible in the event that it is not a matter of highly personal achievements or special skills are required. In this case, however, the original debtor is liable for the third party.

Against the background that Art. 2 UCC does not contain any indications regarding the private assumption of debt, it can be assumed that the assumption of debt can be agreed without further ado, provided that the obligee has no significant interest in the debtor's personal performance .

Note: This article, part of the gtai publication "Legal tips for exporters - USA", which has been withdrawn from distribution, has been checked for content and - if necessary - updated by Verena Eike in January 2014 in the legal section of Germany Trade & Invest. Further articles on the legal situation in the USA are available for you to access in our legal database http://www.gtai.de/recht:

- Tax law in the USA http://www.gtai.de/GTAI/Navigation/DE/Trade/Recht-Zoll/wirtschafts-und-steuerrecht,did=930728.html

- Sales and sales representative search in the USA http://www.gtai.de/GTAI/Navigation/DE/Trade/maerkte,did=920514.html

- Protection of intellectual property in the USA http://www.gtai.de/GTAI/Navigation/DE/Trade/Recht-Zoll/wirtschafts-und-steuerrecht,did=797906.html

- Contract law in the USA http://www.gtai.de/GTAI/Navigation/DE/Trade/Recht-Zoll/wirtschafts-und-steuerrecht,did=905740.html

- Labor law and social security in the USA http://www.gtai.de/GTAI/Navigation/DE/Trade/Recht-Zoll/wirtschafts-und-steuerrecht,did=919518.html

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