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The Limits of Liens in Proceeds Under Article 9

By Frank Peretore
April 01, 2016

This is the second in a series of articles on liens in proceeds under Article 9 of the Uniform Commercial Code.

As illustrated in the first installment of this article, the continuation of a lien in proceeds can cause priority problems, and this becomes especially true when there is a conflicting security interest in the collateral to which the proceeds have been recast. Under Article 9, priority is generally based on the first to file or perfect. U.C.C. ' 9-322(a)(1).

For purposes of proceeds, the time of filing or perfection in the original collateral “is also the time of filing or perfection ' in proceeds.” U.C.C. ' 9-322(b)(1). Because Article 9 is primarily a notice system, the drafters were concerned about a secured party that perfects without filing having priority in proceeds in all collateral, including collateral where the secured parties generally rely upon a lien search. Thus, for purposes of priority in proceeds, Article 9 distinguishes between what the Official Comments call “non-filing collateral” and filing collateral. “Non-filing collateral” is defined as those types of collateral that may be perfected by a method other than filing and for which secured parties generally do not conduct UCC searches. U.C.C. ' 9-322(d). Non-filing collateral includes chattel paper, deposit accounts, negotiable documents, instruments, investment property or letters of credit. Id. See also U.C.C. ' 9-322 cmt. 8.

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