USA Law and Practice Contributed by: Stelios Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins
control of the collateral. However, the absence of a signed and written security agreement would be rare in a commercial transaction. The security agreement is typically selected to be governed by the same law as the law of the state that gov - erns the loan agreement even though the assets intended to be covered by such security agree - ment may be located outside of such state. The UCC is state statutory law and each state of the United States has enacted its own version of it. Although a variety of relatively minor differences exist, Article 9 of the UCC is substantially the same across each and every state. Therefore, little concern typically arises about a debtor in one state granting a security interest under a security agreement governed by the law of a different state. The parties in commercial financings commonly choose the law of a single state (for example, New York law) to govern both the loan agreement and the security agreement, even if some or all of the debtors (or their assets) are located in another jurisdiction. Although par - ties are generally free to choose what law gov - erns the creation or “attachment” of the secu - rity interest, the choice of law rules governing perfection, including where to file a notice filing under the UCC (referred to as a UCC-1 financing statement) and priority are mandatory. A security interest in personal property is said to have “attached” when it becomes enforceable against the debtor. A secured party will also want to “perfect” the security interest so that it is also enforceable against third parties, such as other voluntary or involuntary lienholders and against a trustee in bankruptcy proceedings. A security interest in most types of personal property collateral governed by the UCC may be perfected by filing a UCC-1 financing statement with the Secretary of State in the “location” of
the debtor, although important exceptions apply. A UCC-1 financing statement is ineffective to perfect in deposit accounts, money or letter of credit rights as original collateral. Perfection in some assets are governed by US federal law (which pre-empts state law such as the UCC), including registered copyrights, aircraft and related assets, most ships and other vessels, rail cars and other rolling stock. Perfection in these assets therefore requires compliance with the perfection scheme estab - lished by the applicable federal statute. Security interests in vehicles and other assets subject to certificates of title must be perfected by applica - ble state law certificate of title statutes. Security interests in real estate and other assets excluded from the scope of Article 9 of the UCC (such as insurance, as original collateral) require compli - ance with the applicable state law governing the assets. For debtors that are “registered organisations” (which includes most domestic corporations, limited liability companies and limited partner - ships), the UCC-1 financing statement must be filed in the jurisdiction in which the grantor was formed or incorporated. Special rules apply to other types of organisations, including non-US entities, natural persons and other special types of debtors. In addition to perfection by filing a UCC-1 financing statement, a secured party may per - fect its security interest in certain assets by tak - ing possession and/or “control” of the assets. Goods, instruments, tangible negotiable docu - ments, certificated securities and tangible chat - tel paper are examples of collateral that may be perfected by possession. Obtaining “control” of assets such as deposit accounts, investment property (including share certificates), letter of
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