UCC3`s UNTERORDNUNG mixes the terms a little. An insured part (for example. B a lender) files a „UCC-1 financing statement“ which, as NWT points out, tells the world that it has a security/link interest in the field. UCC-1 has basic information – the name and address of the debtor and the insured party, as well as a brief description of the guarantees. Here is an empty aspect: www.dos.ny.gov/forms/corporations/UCC1.pdf Although subordination agreements are systematically beneficial to all participants, this article deals with a particular circumstance when the contractual expectation of the senior creditor cannot be protected from a lower-tier junior creditor, since the senior creditor does not rely on a less elaborate subordination agreement. In particular, this article deals with a situation in which the subordination agreement on the damages assessment method is silent and is implicitly based on the claim method contained in the UCC which, under the scenario below, could restrict the priority creditor`s right to claim damages against a subsequent creditor. Even if a UCC-3 funding statement is not filed to remove the applicable devices, the secure party in dispute may execute a deposit agreement or similar documents in order to contractually release its right to pledges to the applicable device (or recognize that it has never had and will never claim such a right of bet in a document sometimes referred to as „non-interest“). Subordination agreements allow „someone who otherwise has a priority interest to subordinate this participation to a normally inferior interest“ [1] and are common in the factoring sector and in the world of guaranteed financing as a whole. Compared to many other areas of secure transactions, there are relatively few disputes reported under subordination agreements. At least one authority on this subject considers this „perhaps evidence of their commercial utility and the effectiveness with which commercial enterprises, if left alone, can develop their own contractual priorities scheme.“ [2] Section 9-339 of the Uniform Commercial Code (UCC), entitled Priority Subject of Subordination, explicitly recognizes the rights of high-priority creditors to enter into subordination agreements when it says, „His article does not exclude subordination by agreement of a person who is entitled to priority.“ The Court analysed the Bank`s agreement and priority using four separate theories: (i) the agreement created partial or total subordination; (ii) Caterpillar has obtained an equipment security interest in refinancing the debt on the Caterpillar aircraft; (iii) the placement of the device`s title in an ad hoc entity refuted the bank`s claim; and (iv) the „Composite Document“ rule has perfected Peabody`s interest service for equipment and bank debt.
The next time you consider entering into a subordination agreement, you should consider it crucial to anticipate what your contractual expectations are, how they can be achieved and how to protect them. A carefully crafted provision under the subordination agreement should substantially reduce or remove restrictions on creditors who believe they are wrongly protected or who rely incorrectly on the UCC or the common law. Creditor A did not realize that he had entered into the subordination agreement that should have protected him from this method of harm, but he did not succeed. Although too numerous to lead by example, the following provision could be included in a subordination agreement to protect priority creditors such as creditors A: in 2008, peoples National Bank („Bank“) lent $1.8 million to S Coal, which were guaranteed by certain mining equipment („equipment“).
