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Retention of Title Disputes: Don't Take the Uniform Commercial Code for Granted
Secured lenders to U.S. companies should generally expect to defeat competing retention of title claims asserted by foreign vendors, but this should not be taken for granted. The supporting legal framework is open to judicial interpretation and requires a disciplined application of numerous Uniform Commercial Code (UCC) terms. For an outcome that many secured lenders assume without much hesitation, applicable law does little to justify easy confidence.
This article reminds us of the conflict-of-laws analysis at the heart of such retention of title disputes, and then discuss the multi-step UCC analysis that is also required.
The following is a useful retention-of-title hypothetical. A lender enters into a credit agreement with a U.S. company, and the lender is granted and perfects in a first-priority security interest in the company's domestic accounts receivable and inventory. The company regularly purchases inventory from an overseas vendor pursuant to a distribution agreement that states title to the product does not pass until the company pays all amounts due to the vendor. The governing law under this contract is a foreign law (such as in the United Kingdom) that enforces retained title provisions. The foreign vendor does not file a UCC financing statement in the U.S. The company eventually defaults on its loans from the secured lender, and the company cannot fully pay both the vendor and its lender. Can the secured lender foreclose on the company's inventory located in the U.S.? Can the company sell such inventory and pay the proceeds to the secured lender?
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