Toward facilitating cross-border secured financing and securitization: an analysis of the United Nations Convention on the Assignment of Receivables in International Trade

The Convention promulgates substantive and choice of law rules that will, if the Convention becomes effective in a sufficient number of countries, significantly improve the feasibility of cross-border transactions involving the assignment of receivables. The Convention will achieve this by reducing or eliminating obstacles to efficient commercial practices and by providing greater certainty on many issues. The authors explain the Convention’s provisions and discuss relevant provisions of Revised U.C.C. Article 9 to facilitate comparison and to assist counsel in understanding how the Convention might affect transactions having a U.S. connection.

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In July 2001, after a six-year process, the United Nations Commission on International Trade Law (UNCITRAL) completed its work on the multilateral “Convention on the Assignment of Receivables in International Trade.” The Convention was adopted by the United Nations General Assembly on December 12, 2001 and is now open for signature and ratification or accession by countries. (1)

The rules of the Convention are intended to facilitate cross-border transactions involving the assignment of receivables. For these transactions, the Convention would reduce or eliminate a number of obstacles to efficient commercial practices. In particular, the Convention would create a minimum level of uniformity in the legal rules applicable to these transactions. It would also provide greater certainty on various substantive law issues and greater predictability on some significant choice of law issues. If the Convention becomes effective in a sufficient number of States, (2) it will have a beneficial effect on cross-border asset-based lending, factoring, securitization, and project finance transactions.

Among the more significant provisions of the Convention facilitating cross-border transactions involving the assignment of receivables are: (i) the validation of assignments of receivables in bulk

In this paper we analyze the provisions of the Convention. In doing so we will refer frequently, in the text and in the footnotes to the text, to Article 9 of the Uniform Commercial Code (U.C.C.). (9) We do this particularly to orient a legal practitioner in the United States with respect to generally familiar commercial law and to assist that reader in assessing the impact of the Convention on commercial law and practice in the United States. (10)

Our analysis will proceed as follows. We will first focus on the scope of the Convention and then turn to the rights of assignors and assignees. Next, we will address the rights of debtors on receivables that have been assigned and the rights of various third parties. We will then point out some optional provisions set forth in the Convention. Then, we will discuss the Convention’s relation to other conventions

I. SCOPE OF THE CONVENTION

To appreciate the scope of the Convention, it is necessary to discuss various provisions contained in Articles 1 through 5 of the Convention, including some key definitions. These provisions address the requirement of “internationality,” the requirement that there be a certain nexus in the transaction with a Contracting State, the meaning of the terms “assignment” and “receivable,” how the Convention deals with subsequent assignments, which assignments and receivables are excluded from the scope of the Convention, the Convention’s deference to national consumer protection legislation, and the ability of parties to vary the application of the rules of the Convention by agreement. (11)

THE REQUIREMENT OF “INTERNATIONALITY”

The Convention is, for the most part, intended to address cross-border transactions, but not those that are wholly domestic. Accordingly, the Convention will generally be applicable only if the assignment (12) or the assigned receivable (13) is international. An assignment is international if, at the time of conclusion of the contract of assignment, (14) the assignor (15) and the assignee (16) are located in different States. A receivable is international, if, at the time of conclusion of the contract from which the receivable arose (the Convention refers to that contract as the “original contract” (17)), the assignor and the account debtor or other obligor on the receivable (the Convention refers to the account debtor or other obligor as the “debtor” (18)) are located in different States. (19)

To determine whether the assignment or the receivable is “international,” and for all other purposes of the Convention, (20) the Convention sets forth rules that provide in which State an assignor, an assignee, or a debtor is to be considered as located. Generally, a person is located in the State in which it has its place of business or, if the person has no place of business, in the State of the person’s habitual residence. (21)

If the assignor or assignee has places of business in more than one State, the assignor or assignee is located in the State in which its central administration is exercised. (22)

If the debtor has places of business in more than one State, the debtor is located in the State of the place of business that has the closest relationship to the contract out of which the assigned receivable arises. (23)

THE REQUIREMENT OF A NEXUS TO A CONTRACTING STATE

For the Convention to apply, the assignor must be located in a Contracting State. (24) Neither the assignee nor the debtor need be located in a Contracting State for the Convention to apply. Even if the assignor is located in a Contracting State and the Convention would otherwise apply, however, the rights and obligations of a debtor may not be affected by the Convention unless either the debtor is located in a Contracting State or the original contract is governed by the law of a Contracting State. (25)

THE MEANING OF THE TERMS “ASSIGNMENT” AND “RECEIVABLE”

The Convention applies only to “assignments” of “receivables.” The scope of the Convention is limited by the meaning of these terms as defined in the Convention. (26)

The Convention uses the term “assignment” to refer only to consensual assignments of receivables, (27) such as the creation of a security interest in a receivable, the transfer of ownership of a receivable for security purposes (28) or a “true sale” of the receivable. (29) An involuntary transfer of a receivable, such as occurs upon the garnishment of the receivable by a creditor of the assignor, or a transfer that takes place by operation of law, such as a statutory forfeiture of a receivable, is not an assignment under the Convention.

The Convention uses the term “receivable” to mean any “contractual right to payment of a monetary sum.” (30) Accordingly, the term “receivable” includes, for example, contractual receivables arising from the sale or lease of personal or real property, the provision of services, the extension of credit, claims under policies of insurance and reinsurance, and the licensing of intellectual property or information. A “receivable” may be either a commercial or a consumer receivable. The title of the Convention notwithstanding, a Convention receivable is not limited to a receivable arising in international trade.

A “receivable” as so defined does not include noncontractual rights to payment arising from, for example, tort claims, governmental claims against taxpayers for unpaid taxes, taxpayer claims against governmental units for tax refunds, or other claims arising by operation of law, unless, of course, the claim is reduced to and evidenced by a settlement agreement or other contract. (31)

SUBSEQUENT ASSIGNMENTS

The Convention applies to an assignment covered by the Convention even if an assignment of the same receivable to a predecessor assignee was not covered by the Convention. (32)

In addition, even if the Convention would not otherwise be applicable to a further assignment of a receivable, the Convention does apply to that further assignment if an assignment of that receivable to a predecessor assignee was covered by the Convention. (33) Moreover, this is the case even if the assignor making the subsequent assignment is not located in a Contracting State.

Accordingly, and despite the general thrust of the Convention otherwise, it is possible that the Convention may in fact apply to a wholly domestic transaction, such as the assignment by an assignor located in one State to an assignee located in the same State of a receivable owed by a debtor located in the same State, if an earlier assignment of the receivable was covered by the Convention. In practice, this possibility will mean that, in analyzing the potential for applicability of the Convention, it may be necessary for the intended assignee or other party in interest to determine whether the assignment is a subsequent assignment and, if so, whether any earlier assignment of that receivable was covered by the Convention. The necessity to make such analysis will affect both transaction due diligence procedures and opinion letter practice.

EXCLUSIONS

The Convention excludes assignments of certain receivables that are considered unrelated to trade finance or which are considered to arise in specialty markets currently regulated by governments or currently self-regulated in well-functioning markets. (34) In particular, the Convention excludes assignments of receivables arising under or from:

* transactions on a regulated exchange

* derivative and other financial contracts governed by netting agreements (other than a receivable reflecting the “close out” under the master agreement or agreements of the entire set of transactions between the parties)

* foreign exchange transactions

* bank deposits

* inter-bank payments, inter-bank payment agreements, and clearance and settlement systems relating to securities or other financial assets or instruments

* letters of credit and independent guaranties

* a security interest in, sale, loan, or holding of or agreement to repurchase securities or other financial assets or instruments held through an intermediary. (41)

Other exclusions from the coverage of the Convention deal with assignments made “[t]o an individual for his or her personal, family or household purposes,” (42) and assignments of receivables made “[a]s part of the sale or change in the ownership or legal status of the business out of which the assigned receivables arose.” (43) The former exclusion applies only in the rare case when an individual is assigned receivables for the individual’s own consumer purposes. The latter exclusion means that the transfer of receivables in connection with the sale or merger of the business that generated the receivables is not covered by the Convention.

Although not expressed as exclusions from the Convention’s coverage, Article 4 sets forth two additional limitations on the effect of the Convention. One limitation, in Article 4(3), provides that nothing in the Convention affects the rights and obligations of any person under what is tersely referred to as “the law governing negotiable instruments.” (44) The Convention assumes that what constitutes “the law governing negotiable instruments,” including presumably the resolution of any choice of law issues in situations in which there might be multiple potential sources of law affecting a transaction involving a particular negotiable instrument, will be generally understood without further definition or other guidance in the Convention.

The other limitation, in Article 4(5), preserves the applicability of the law of the State in which real property is situated in certain contexts. (45) The Convention preserves the applicability of that local law to an interest in the real property, but only to the extent that under that law the assignment of a receivable confers such an interest. This restriction on the applicability of the savings clause might in some circumstances prove problematic. The savings clause would preserve for the benefit of an assignee of rents arising from a real property lease such protection as exists under the local law of the State in which the real property is situated to the extent that under that law the assignment of the rents confers upon the assignee an interest in the real property. (46) To the extent that the assignment of the rents confers an interest in the real property under that local law, the Convention would leave the assignee of rents arising from a lease of real property situated in the United States to take whatever steps are required for the assignee to achieve the desired priority under the internal law of the particular state in the United States in which the real property is situated. (47) This result would normally be in accord with the expectations of the assignee and third parties. Nevertheless, since the effect of this savings clause is limited to transactions in which, under the law of the state in which the real estate is situated, the assignment of real property rents confers an interest in real property on the assignee, it is unclear how much significance this savings clause will have with respect to real property situated within the United States. (48)

Furthermore, the Convention also preserves the applicability of the law of the State in which real property is situated to the priority of a right in a receivable, again, however, only to the extent that under that law an interest in the real property confers such a right. (49) For example, if under the law of the State in which the real property is situated a mortgage encumbering the ownership of real property confers a priority right in any rentals generated from the lease of the real property, the priority right of the mortgagee will not be affected by the Convention. (50)

In both of the situations just discussed, however, the potential impact of the restriction on the applicability of the local law of the situs of the real property will be mitigated by the fact that many of the transactions that involve real property situated in the United States are likely to be transactions in which the assignor is, under the Convention’s party location rules, located in the United States. (51)

In addition to the Convention’s specific exclusions discussed above and the effect of the rules in Article 4(3) and (5), a State may, at any time, by declaration, effectively add to the Convention’s exclusions by declaring that it will not apply the Convention “to specific types of assignment or to the assignment of specific categories of receivables clearly described” in the declaration. (52) This declaration technique enables a State to address special situations for which it views the Convention to be inappropriate, without having to decline to become a Contracting State.

There are, however, two important limitations on the use of this technique to create further exclusions. First, the exclusion will apply to exclude the specified assignments or receivables only if the assignor is located in the declaring (53) State or, if the rights or obligations of the debtor are affected, the debtor is located in that State or the original contract is governed by the law of that State. (54) Second, the State may not make such a declaration with respect to assignments of receivables arising from the sale or lease of goods or real property, from the provision of services other than financial services, from credit card transactions, from the sale, lease, or licensing of intellectual property or information and from close out payments under multiparty non-financial netting agreements. (55)

It is important to bear in mind that, as a general matter, many transactions involving assignments or receivables referred to in the Convention’s exclusions may nevertheless fall within the scope of U.C.C. Article 9. (56) Conversely, some transactions involving assignments or receivables that are excluded from the scope of U.C.C. Article 9 may nevertheless fall within the scope of the Convention. (57)

CONSUMER PROTECTION

In addition to its general debtor protection provisions, (58) the Convention provides a special consumer protection rule. The Convention does not affect the rights and obligations of a debtor or an assignor under applicable domestic “special laws governing the protection of parties to transactions made for personal, family or household purposes.” (59)

VARIATION BY AGREEMENT

The Convention generally permits the parties to an original contract or the parties to a contract of assignment to vary by agreement provisions of the Convention relating to their respective rights and obligations. The agreement may not, however, affect the rights of a third party without that third party’s consent. (60)

II. RIGHTS BETWEEN ASSIGNOR AND ASSIGNEE

The Convention addresses some aspects of the relationship between assignors and assignees. While the Convention does not address the form of a contract of assignment as such, it does address bulk assignments of receivables, present assignments of future receivables, assignments of partial and undivided interests in receivables, anti-assignment clauses, and supporting obligations and liens. The Convention also supplies representations of the assignor which are made to the assignee unless otherwise agreed between them.

FORM OF CONTRACT OF ASSIGNMENT

The Convention does not require that a contract of assignment be in writing (61) or impose other formalities, such as signatures of witnesses or notarial seals. Formalities are left to the form requirements of applicable national law. (62)

To the extent that under national law notification to the debtor of the assignment is a condition to effectiveness of the assignment even as between the assignor and the assignee, as is the rule in some countries, such a rule is overridden by the Convention. Article 14(1) of the Convention makes notification of the assignment to the debtor irrelevant, in the context of the relationship between the assignee and the assignor, in determining whether the assignee is entitled to payment of the assigned receivable. (63)

BULK ASSIGNMENTS

The Convention validates assignments of receivables in bulk, i.e., the Convention does not require that each receivable be identified individually. (64) General descriptions of receivables in an assignment are effective so long as the receivables are described in such a manner that they can “be identified as receivables to which the assignment relates.” (65)

ASSIGNMENTS OF FUTURE RECEIVABLES

The Convention validates assignment of future receivables by means of a present assignment. (66) This provision is supported by an explicit rule that no new act of transfer is required under the Convention to assign a future receivable at or after the time that it arises. (67)

ASSIGNMENTS OF PARTIAL OR UNDIVIDED INTERESTS

The Convention validates a partial assignment of receivables and also validates the assignment of an undivided interest in receivables, e.g., a percentage interest in a pool of receivables. (68) In fact, taken together with the Convention’s validations of bulk assignments of receivables and present assignments of future receivables, it is possible under the Convention for there to be an assignment of an undivided interest in a changing pool of receivables.

ANTI-ASSIGNMENT CLAUSES

For certain types of receivables, the Convention makes an assignment effective notwithstanding that a term of the contract between the assignor and the debtor or a subsequent assignee limits “in any way” the assignor’s right to assign the receivables. (69) This rule would encompass a contractual term purporting to render ineffective an assignment made in violation of the term. (70) The Convention preserves any obligation or liability of the assignor for breach of the contractual anti-assignment term, but the debtor may not exercise a right to terminate the agreement on account of the breach of that term, and the assignment is nevertheless effective. (71)

The potential liability of the assignee for inducement of, or participation in, the breach of contract by an assignor who assigns a receivable notwithstanding an anti-assignment term is dealt with in the Convention to a limited extent. “A person who is not a party to [the agreement limiting assignment] is not liable on the sole ground that it had knowledge of the agreement.” (72) This language of the Convention, clearly intended to protect innocent assignees from tortious interference claims by debtors, arguably may leave some residual risk of such a claim being made by a debtor under national law against an assignee who has knowledge of the anti-assignment term and nevertheless proceeds to take the assignment. (73)

The types of receivables to which the Convention override of contractual anti-assignment terms would apply are those arising from the sale or lease of goods or real property, from the provision of services other than financial services, from credit card transactions, from the sale, lease or licensing of intellectual property or information, and from close out payments under multiparty non-financial netting agreements (e.g., interline shipping agreements among multiple carriers). (74)

These types of receivables are the only types of receivables to which the Convention override of the contractual anti-assignment term would apply For example, the Convention would not override a contractual anti-assignment term in a syndicated loan agreement because the loan receivable is not a type of receivable covered by the Convention’s override provisions. (75)

Nevertheless, the range of receivables covered by the Convention’s anti-assignment override provisions is extremely broad. These provisions should prove of great value in promoting the efficiency of cross-border financing of most trade receivables as well as of the other categories of receivables specified.

The effect of a contractual anti-assignment term on the assignment of a receivable that is not a type of receivable covered by the Convention’s override provisions is left to national law. (76) Also left to national law is the effect of a non-contractual anti-assignment rule in a statute or other national law (other than a general commercial law restricting bulk assignments, assignments of future receivables, or assignments of partial or undivided receivables interests as such). (77)

In addition, a Contracting State is permitted to declare whether and to what extent an assignment of a receivable owed by a debtor, or supported by a secondary obligor, that is a governmental entity or is “an entity constituted for a public purpose” in that State will be excluded from the Convention rules that override contractual anti-assignment terms. (78) A State’s declaration under this provision may be of particular relevance in public project finance transactions relating to that State.

SUPPORTING OBLIGATIONS AND LIENS

The Convention provides that an assignment of a receivable also transfers to the assignee any guaranty or collateral supporting or securing the payment of the receivable. (79) The Convention provides that generally:

A personal or property right securing payment of the assigned receivable is

transferred to the assignee without a new act of transfer. If such a right,

under the law governing it, is transferable only with a new act of

transfer, the assignor is obliged to transfer such right and any proceeds

to the assignee. (80)

As noted above, (81) the Convention provides for such transfer despite a contractual anti-assignment term when that term is overridden by the Convention.

ASSIGNOR’S REPRESENTATIONS

The Convention sets forth representations that, unless disclaimed or modified, the assignor makes to the assignee in connection with an assignment of receivables. The representations are that the assignor has the right to assign the receivables, the assignor has not previously assigned the receivables to another assignee, and the debtor does not have and will not have any defenses or rights of set-off relating to its payment obligations on the assigned receivables. (82) The assignor does not represent, in the absence of a contrary agreement, that the debtor has or will have the financial ability to pay the assigned receivables. (83)

The representations of an assignor provided by the Convention are such that, in some instances, the contract of assignment will have to be adjusted by the parties to fit a particular assignment transaction. Otherwise, the assignor will make the Convention representations by default. For example, in the case of a sale of receivables, if the debtors have defenses or rights of set-off known to the parties and these are taken into account in negotiating the purchase price, one might expect that the contract of assignment would exclude or modify the Convention representation that the debtors have no defenses or rights of set-off, to reflect the parties’ bargain that the assignor is not responsible for the debtors’ assertions of defenses or rights of set-off.

III. RIGHTS OF DEBTORS

The Convention sets forth a number of rules relating to the debtor’s relationship to assignors and assignees. The Convention includes provisions dealing with the circumstances under which, and by whom, the debtor may be notified of an assignment and be given instructions as to whom it should pay

NOTIFICATIONS AND PAYMENT INSTRUCTIONS

The Convention provides that it is for the assignor and the assignee to agree as to whether, when, and by whom a debtor should be notified of the assignment and as to whether, when, and by whom the debtor should be instructed to make payments to the assignee. (84) A notification or instruction sent in breach of such agreement, however, is nonetheless effective. (85)

“Notification of the assignment” is defined to require a writing (86) that reasonably identifies the assigned receivable and the assignee. (87) Moreover, notifications and payment instructions are effective only if they are given in the language of the original contract or, if in another language, the other language is reasonably expected to inform the debtor of their contents. (88) The payment instructions may not require payment in a currency or State different from that required in the original contract. (89)

DEBTOR DISCHARGE

After having received notification of the assignment and instruction to make payment to the assignee, the debtor is discharged by paying the assignee. (90) If notification of the assignment is given by the assignee, the debtor is entitled to request “adequate proof” of the assignment, as well as of all preceding assignments in a chain of assignments to the assignee, before paying the assignee. Unless the assignee provides such proof, the debtor is entitled to a discharge by paying as if the notification had not been received. (91)

The Convention also addresses receipt by the debtor of multiple notifications of the assignment and multiple payment instructions. If the debtor receives, from each of two assignees of the same assignor, a notification of the assignment of the receivable, the debtor may obtain a discharge by paying the assignee from whom the debtor first receives notification. (92) If the debtor receives more than one payment instruction relating to an assignment, the debtor may obtain a discharge by paying in accordance with the payment instruction last received by the debtor. (93) If the debtor receives notification of more than one subsequent assignment, the debtor may obtain a discharge by paying in accordance with the notification of the last of such subsequent assignments. (94) Although each of these rules is clear, a debtor may have to use caution and possibly make further inquiries to determine which rule is applicable to a particular circumstance.

Moreover, the debtor retains any right to obtain a discharge under other law by paying the person entitled to payment or by following any local procedures for depositing disputed funds into court. (95)

RECOUPMENT AND SET-OFF

The Convention generally preserves a debtor’s rights of recoupment and setoff on an assigned receivable. (96) A debtor may not, however, set-off against its obligation on a receivable a claim against the assignor arising under an unrelated contract after the debtor’s receipt of notification of the assignment of the receivable to the assignee. (97) Also, if a receivable contains an anti-assignment term overridden by the Convention, the debtor may not raise the breach of the contractual anti-assignment term to reduce the debtor’s obligation to pay the assignee. (98)

AGREEMENTS NOT To ASSERT CLAIMS OR DEFENSES

The Convention validates an agreement made by a debtor “with the assignor in a writing signed by the debtor” (99) not to assert against an assignee “the defences and rights of set-off that it could raise pursuant to article 18.” (100) The debtor may not, however, waive defenses based on the debtor’s incapacity or arising from fraud on the part of the assignee. (101) Moreover, in the case of a consumer debtor, the validation is, of course, also subject to any contrary rule under applicable national consumer protection laws. (102)

CONTRACT MODIFICATION

The Convention provides rules for determining when a modification of an original contract is binding upon an assignee. Generally, an assignor and a debtor may not, with effect against the assignee, modify the terms of a fully earned receivable after the debtor has been notified of the assignment of the receivable. (103) A post-notification modification will be effective against the assignee, however, if “[t]he receivable is not fully earned by performance and either the modification is provided for in the original contract or, in the context of the original contract, a reasonable assignee would consent to the modification.” (104) It will also be effective if the assignee consents to the modification. (105)

ASSIGNEE LIABILITY

The Convention protects the assignee from an effort by a debtor to recover from the assignee, based upon the assignor’s failure to perform the original contract, any payments previously made to the assignor or the assignee. (106) Again, however, the protection of the assignee from such a claim by a consumer debtor is subject to any contrary rule under applicable national consumer protection laws. (107)

In addition, as indicated above, (108) if a receivable contains a contractual anti-assignment term overridden by the Convention, the Convention protects the assignee from liability to the debtor under applicable national law for accepting an assignment of the receivable if the liability would be based solely upon the assignee’s knowledge of the contractual anti-assignment term. (109)

IV. PERFECTION, PRIORITY, AND OTHER THIRD PARTY RIGHTS

The Convention contains a number of rules that address the “priority” of the assignee’s interest in an assigned receivable. To appreciate the significance of these rules, it is important to consider what the Convention means by “priority,” the general limitation of the Convention’s priority rules to choice of law rather than substantive law, the impact of the Convention’s priority choice of law rules on determining the nature of the assignee’s interest in an assigned receivable and the priority of that interest over a competing claimant, the Convention’s substantive rule protecting some assignments from loss of priority under national law, the Convention’s substantive priority rule for proceeds, and the exceptions to the application of the Convention’s priority rules.

THE MEANING OF “PRIORITY”

“Priority” is defined in the Convention as

the right of a person in preference to the right of another person and, to

the extent relevant for such purpose, includes the determination whether

the right is a personal or a property right, whether or not it is a

security right for indebtedness or other obligation and whether any

requirements necessary to render the right effective against a competing

claimant have been satisfied. (110)

Accordingly, the term includes many aspects of the nature of the assignee’s interest in the assigned receivable. The term also includes what U.C.C. Article 9 would refer to as “perfection” (111) as well as “priority” (112) against other competing interests.

PRIORITY CHOICE OF LAW RULES IN GENERAL

For the most part, the nature of the assignee’s interest in an assigned receivable and what, in U.C.C. Article 9 terms, would be the perfection and priority of that interest are addressed in the Convention by a choice of law rule rather than substantive law rules. Under this choice of law rule, as further explained below, these matters are generally determined by the internal law of the State in which the assignor is located. (113)

The choice of law pointer to the law of the assignor’s State to determine priority is subject to “the exception of matters settled elsewhere in this Convention” (114) and to the exceptions discussed below. (115)

The decision to limit the Convention’s priority rules largely to choice of law rules deserves further comment. Although ideally the Convention might have provided substantive priority rules, UNCITRAL was not able to reach consensus on what those rules should be. Providing choice of law rules for issues of priority was the next preferred alternative.

At first glance, the limitation of the priority rules of the Convention to choice of law rules may appear problematic when considered together with the Convention’s party location rules. Those planning transactions that might be within the scope of the Convention will need to assess whether the Convention applies to a particular transaction and, if so, whether the priority rules of the assignor’s State, as determined under the party location rules of the Convention, have been satisfied. The party location rules of the Convention will have an impact on both determinations: whether the requisite internationality and other scope requirements have been met so as to make the Convention applicable, and which State’s law will provide the operative priority rules. That assessment may well also have an impact on opinion practice.

In fact, in a few instances, the application of the Convention’s choice of law rules for priority, when considered with the Convention’s party location rules, may produce a result different from that under the national law of a particular State. To take one example, let us assume that the United States and the United Kingdom are Contracting States. Consider an assignor Delaware corporation, centrally administered from the United Kingdom, that borrows funds secured by its receivables owed by debtors located in the United States. Assume that the receivables are “accounts” as defined in U.C.C. Article 9. (116) The assignor is, under the Convention’s party location rules, located in the United Kingdom, (117) and the test of internationality would be met (i.e., the receivables would be international under the Convention) by the fact that the assignor is located in one State (United Kingdom) and the account debtors are located in another State (United States). (118) Whether or not the assignee is located in the United States, the assignee would, under the Convention, achieve priority for its security interest in the receivables by satisfying whatever priority requirements exist under the laws of the United Kingdom. This would be the case notwithstanding that, in the absence of the Convention, U.C.C. Article 9 would view the assignor to be located in Delaware, (119) with the perfection and priority steps to be taken by the assignee being those required under internal Delaware law. (120) If a challenge to the assignment were made in the United States, the Convention would require that the assignee have complied with the priority requirements of United Kingdom law even though the assignee had taken all steps required under U.C.C. Article 9 to perfect its security interest and to obtain the desired priority.

Of course, there will likely be no differences in the party location rules between the Convention and U.C.C. Article 9 in the large bulk of transactions affected. (121) An assignor that is a corporation or other legal entity organized under the laws of a state of the United States with its chief executive office in the United States would be viewed under both the Convention and U.C.C. Article 9 as located in the United States. (122) Similarly, an individual assignor who operates a business and resides in the United States would be viewed under both the Convention and U.C.C. Article 9 as located in the United States. (123) Thus, when the party location rules of the Convention and of U.C.C. Article 9 relating to an assignor are the same, even if the Convention otherwise applies, the assignee in a U.C.C. Article 9 secured transaction will, for most collateral, take the same steps to perfect its security interest and to obtain the desired priority as it would take under U.C.C. Article 9 were there no Convention.

In some circumstances, however, apart from the party location rules, the Convention’s choice of law priority rules and national law otherwise applicable would produce different results. These divergences must be discerned and taken into account by those planning the affected transactions. The divergences should also be reflected in opinion practice. Several particular areas of potentially different results are noted here to assist the U.S. practitioner. None of these is of such a magnitude or likely frequency of occurrence as to outweigh the benefits derived from the Convention.

One area where application of the Convention party location rules and choice of law priority rules might have unanticipated results concerns sales and hypothecations, not conducted on a regulated exchange, of directly held debt not evidenced by a negotiable instrument. Such transactions include transfers in the private institutional debt trading and capital markets. In these markets, sales of loans and other debt obligations are made by participants that operate in a number of countries. Consider the following example. Citigroup, through its head office in New York, is considering purchasing a commercial loan held on the books of the New York branch of Credit Suisse. The documentation provides that the transaction is to be governed by New York law. Normally, a U.S. practitioner advising Citigroup might well assume that perfection and priority rules governing the loan purchase would be determined by the law of a state in the United States. Indeed, that would be the case if the transaction were governed by U.C.C. Article 9. (124) The U.S. practitioner would then comply with the perfection and priority rules of U.C.C. Article 9. (125) However, if Credit Suisse’s central administration is in Zurich and if the United States and Switzerland were Contracting States, the Convention would require that Citigroup comply with the internal law of Switzerland to perfect and achieve the desired priority for its purchase of the loan. Of course, even apart from the Convention, it might be prudent for Citigroup to investigate and comply with Swiss law before purchasing the loan. (126) Indeed, Swiss internal law may require no special action to be taken by Citigroup. Nevertheless, the application of the Convention would require that Citigroup investigate and comply with Swiss law before purchasing the loan.

A second area concerns certain assignments of rents arising from a lease of real property. (127) Typically, when an assignment is made of rents arising from the lease of real property situated in the United States, the assignee will record the assignment in the appropriate real property recording office in the state in which the real property is situated in order to achieve priority. (128) If, however, the United States became a Contracting State and the assignor were, under the Convention’s party location rules, located in a Contracting State other than the United States, the assignee would need to ascertain and comply with the perfection and priority rules of the other Contracting State. Presumably, also, any title company issuing an insurance policy covering the priority of the assignment of rents arising from a lease of real property will likewise insist on such compliance or would exclude the impact of the Convention from the insurance coverage.

Because of the savings clause in Article 4(5)(a), the impact of the Convention on assignments of real property rents may not be significant with respect to real property situated in a state in which an assignment of rents arising from a lease of real property confers on the assignee an interest in the real property For real property situated in such a state, the Convention protects the priority of the assignee of the rents who takes the required steps to achieve priority under the law of the state in which the real property is situated. (129)

In a state in which the assignment of rents arising from a lease of real property does not confer on the assignee an interest in the real property, however, the Convention may in some circumstances affect current practices. That is because the Convention will make applicable the law of the assignor’s location without preserving the applicability of the law of the State in which the real property is situated. (130)

That risk, however, is mitigated by the fact that many transactions that involve real property situated in the United States will be transactions in which the assignor will, under the Convention’s party location rules, be located in the United States. For transactions in which the assignor is, under the Convention’s party location rules, located in the United States and the real property is also situated in the United States, the Convention’s choice of law priority rule will not affect the steps that the assignee of rents would normally take under applicable state law in the United States to achieve its desired priority.

A third area relates to nonnegotiable instruments and chattel paper. In some cases in which U.C.C. Article 9 governs a secured transaction, an assignee will obtain an assignment of a receivable evidenced by an instrument (131) or tangible chattel paper (132) and will seek to perfect that assignment, as permitted under U.C.C. Article 9, by means of the assignee’s possession of the instrument or tangible chattel paper. (133) Under U.C.C. Article 9’s choice of law rules, perfection, the effect of perfection and non-perfection, and priority of a possessory security interest in an instrument or tangible chattel paper are all governed by the law of the jurisdiction in which the instrument or tangible chattel paper is located. (134) If, however, the United States became a Contracting State and the assignor were, under the Convention’s party location rules, located in a Contracting State other than the United States, the assignee would not be able generally to rely upon possession of the instrument or tangible chattel paper to insure the perfection and priority of the assignment. Instead, it would be necessary for the assignee to ascertain and comply with the perfection and priority rules of the Contracting State in which the assignor is located (as determined under the Convention’s party location rules).

To some extent, the impact of this difference is mitigated in the Convention itself. The Convention will protect the assignee if the instrument or any instrument included in the tangible chattel paper is a negotiable instrument and the assignee is protected under negotiable instruments law

A fourth area concerns electronic chattel paper (137) and “transferable records.” In some cases, an assignee will obtain an assignment of a receivable evidenced by electronic chattel paper or by a “transferable record” as defined in section 7021 of the Electronic Signatures in Global and National Commerce Act (E-SIGN) (138) or in section 16 of the Uniform Electronic Transactions Act (UETA), as enacted in various states in the United States. (139) Under U.C.C. Article 9, a secured party that perfects its security interest in electronic chattel paper by “control” (140) has in certain instances priority over a secured party that perfects its security interest by the filing of a financing statement. (141) Under the provisions of E-SIGN, a person in “control” (142) of an electronic record that, if in paper form, would otherwise be a negotiable promissory note would be given the priority status of a holder in due course under U.C.C. Article 3, if the payment obligation were secured by an interest in real property. (143) Under the provisions of UETA, a person in “control” (144) of an electronic record that, if in paper form, would otherwise be a negotiable promissory note or a negotiable document of title would be given, as the case may be, the priority status of a holder in due course under U.C.C. Article 3 or a person to whom a negotiable document of title was duly negotiated under U.C.C. Article 7, or a person entitled under U.C.C. Article 9 to a possessory priority security interest in an instrument. (145)

If, however, the United States became a Contracting State and the assignor were, under the Convention’s party location rules, located in a Contracting State other than the United States, the assignee would not generally be able to rely upon the electronic chattel paper control priority provisions of U.C.C. Article 9 or the control priority provisions of E-SIGN or UETA. It is unlikely that the Convention rule protecting a holder of a negotiable instrument would protect the assignee of a transferable record that, if in paper form, would be a negotiable instrument. And there does not appear to be any other rule of the Convention which protects the assignee. Rather, it would be necessary for an assignee to comply with the perfection and priority rules of the Contracting State in which the assignor is located (as determined under the Convention’s party location rules).

One may question, on several grounds, however, whether the impact of the Convention’s choice of law rule for perfection and priority of an assignment of a transferable record will be significant. Electronic chattel paper and transferable record transactions in the United States currently do not appear to be prevalent in any important respect except perhaps for certain real property mortgage loan transactions. Furthermore, any volume of electronic chattel paper or transferable record transactions in the United States would likely occur with assignors that are, under the Convention’s party location rules, located in the United States. In addition, given that neither E-SIGN nor UETA stipulates choice of law rules and that a challenge to the assignment could occur in a forum that does not apply the U.C.C., E-SIGN, or UETA, a well-advised assignee might, in any event, even if there were no Convention, ascertain and comply with the laws of the country in which the assignor is located (and even perhaps the laws of other jurisdictions) to assure itself of perfection and priority of the assignment when the assignor is not located in the United States. (146)

Moreover, the possibility of divergences between results under the Convention and those under domestic law is even greater if, after the contract of assignment is concluded, the assignor changes its location. An assignor may be located in one State at the time of the conclusion of the original contract or the contract of assignment and then later move its location to another State. Under the Convention, it is at the time of the conclusion of the original contract or the contract of assignment that “internationality” is tested, (147) but a priority dispute is resolved under the law of the State in which the assignor is located at the time that the dispute arises. (148)

It might in some circumstances be possible for parties to structure their transaction to avoid application of the Convention if an earlier assignment or the receivable is not already covered by the Convention. (149) This result might be achieved, if an earlier assignment or the receivable were not already covered by the Convention, by the parties forming and conducting the transaction through one or more special purposes entities so that the transaction would be wholly domestic. (150) It might also be achieved if the assignment or the receivable were structured to fall within one of the Convention’s exclusions. (151) These avoidance techniques may be especially important in circumstances where the assignor party location rules of the Convention point to the law of a country whose perfection and priority rules are unclear, burdensome, or contrary to the expectations of the parties in a cross-border transaction. While such structural engineering is not to be encouraged as a general matter, it may provide an important safety valve where the Convention inadvertently creates transaction costs or other risks for a particular transaction.

The existence of this safety valve may enable States to adopt the Convention and enjoy its overall benefits without necessarily having to suffer adverse effects in particular transactions.

It may fairly be concluded that, even in the absence of a greater number of substantive rules addressing priority and despite the possibility, in some circumstances, of divergences from domestic law that may not be avoided by structuring techniques, the presence of the general choice of law rules for priority, supported by the carefully circumscribed exceptions achieved by means of the exclusions, makes the Convention of great value to cross-border receivables transactions. By limiting the number of jurisdictions whose laws might be applicable with respect to issues of priority, adoption of the Convention should result in reduced costs in transactions in which, because of the current uncertainty over which jurisdiction’s laws apply, costly ascertainment of and compliance with the laws of several countries are often necessary or prudent.

CHOICE OF LAW RULE AS TO THE NATURE OF AN ASSIGNEE’S INTEREST IN ASSIGNED RECEIVABLE

To the extent that the matter is relevant to a priority dispute, whether the assignee has only a contractual right with respect to assigned receivables or has a property interest in the assigned receivables is governed by the internal laws of the State in which the assignor is located (under the Convention’s party location rules). (152) Likewise, whether the assignment is a “true sale” or is for security purposes is governed by the internal laws of that State. (153)

CHOICE OF LAW RULE AS TO PRIORITY OVER COMPETING CLAIMANTS

Under the Convention, the interest of an assignee has priority over the interest of a “competing claimant” in the same receivable if the interest of the assignee has priority over the interest of the competing claimant under the internal laws of the State in which the assignor is located (under the Convention’s party location rules). (154)

To appreciate fully the breadth of this choice of law rule, it is important to focus on several definitions. The Convention defines a “competing claimant” as a claimant in one of three categories:

(i) [a]nother assignee of the same receivable from the same assignor, including a person who, by operation of law, claims a right in the assigned receivable as a result of its right in other property of the assignor, even if that receivable is not an international receivable and the assignment to that assignee is not an international assignment

(ii) [a] creditor of the assignor

(iii) [t]he insolvency administrator. (155)

An “insolvency administrator” is defined as “a person or body, including one appointed on an interim basis, authorized in an insolvency proceeding to administer the reorganization or liquidation of the assignor’s assets or affairs.” (156) An “insolvency proceeding” is defined as “a collective judicial or administrative proceeding, including an interim proceeding, in which the assets and affairs of the assignor are subject to control or supervision by a court or other competent authority for the purpose of reorganization or liquidation.” (157)

Accordingly, if an assignor were, under the Convention’s party location rules, located in the United States, the United States were a Contracting State, and the assignment and the receivable were covered by the Convention, an assignee with a security interest in the receivable would have priority under the Convention over a creditor of the assignor and over the assignor’s bankruptcy trustee to the extent that the assignee would have priority under the internal laws of the United States, including the Bankruptcy Code (158) and state law applicable in a case under the Bankruptcy Code. (159) Under that substantive domestic law, the assignee would have that priority, absent the assignment being avoided as a preference or fraudulent transfer or under other Bankruptcy Code avoidance rules and putting aside the Bankruptcy Code’s general provisions relating to treatment of secured creditors, if the assignee had perfected the assignment under U.C.C. Article 9. (160) Because of the definitions of “insolvency administrator” and “insolvency proceeding,” the Convention’s choice of law priority rule would apply regardless of whether the assignor’s case was a liquidation under Chapter 7 or a reorganization under Chapter 11 and regardless of whether the case was a voluntary or involuntary one.

Similarly, under that substantive domestic law and assuming that the assignment is not avoided under the avoidance provisions of the Bankruptcy Code, (161) the assignee would have priority against a competing assignee of the assignor to the extent that the assignee was entitled to priority under the “first to file or perfect” priority rule of U.C.C. Article 9, (162) absent a special priority rule of U.C.C. Article 9 being applicable. (163)

PROTECTION OF CERTAIN ASSIGNMENTS

One of the great advances achieved by the Convention is its validation of bulk assignments of receivables, (164) present assignments of future receivables, (165) and assignments of partial or undivided interests in receivables. (166) To protect the validation of those assignments from being impaired by an internal rule of the State in which the assignor is located which does not contemplate such assignments, the Convention specifically provides that an assignee’s interest in assigned receivables may not be set aside or subordinated merely because the internal laws of the State in which the assignor is located do not generally recognize bulk assignments of receivables, present assignments of future receivables, or assignments of partial or undivided interests in receivables. (167)

How this protective rule will operate in practice remains to be seen. It should have little impact in a State such as the United States which has generally long recognized the validity of such assignments (168) and whose laws include priority rules to deal with them. In States that do not have domestic laws that recognize such assignments, the operation of the Convention protection rule will highlight a void in that State’s laws and might lead to domestic law reform, whether in connection with the State’s adoption of the Convention or at some time thereafter. Indeed, such domestic law reform would be a very welcome side effect of the promulgation of the Convention.

SUBSTANTIVE PROCEEDS RULES

The Convention states that “proceeds” means “whatever is received in respect of an assigned receivable, whether in total or partial payment or other satisfaction of the receivable. The term includes whatever is received in respect of proceeds. The term does not include returned goods.” (169)

As between the assignor and the assignee, unless otherwise agreed, the assignee is entitled to the proceeds and goods returned in respect of the assigned receivable. (170) This rule applies whether or not notification of the assignment has been sent and whether the proceeds are received by the assignee or the assignor. (171) This rule also applies if the payment is made to a third person over whom the assignee has priority. (172) In all of these cases, of course, “[t]he assignee may not retain more than the value of its right in the receivable.” (173)

In addition, by virtue of a substantive rule that is not limited to the relationship between the assignor and the assignee, if the assignee receives the proceeds, the assignee is entitled to retain those proceeds to the extent that, under the internal law of the State in which the assignor is located, the assignee’s interest in the assigned receivable would have priority over the interest of a competing claimant in the receivable giving rise to the proceeds. (174)

Moreover, the assignee’s right in proceeds received by the assignor, rather than the assignee, has priority over the right of a competing claimant in those proceeds to the extent that the assignee’s right in the assigned receivable would, under the internal law of the State in which the assignor is located, have priority over the right of the competing claimant in the receivable–if two tests are met. The first test is that the assignor must have received the proceeds under instructions from the assignee to hold the proceeds for the benefit of the assignee. (175) The second test, which we might refer to as the “segregation” test, is that the proceeds must be held by the assignor for the benefit of the assignee separately and be reasonably distinguishable from the assets of the assignor. (176)

The Convention provides as examples two situations that meet the “segregation” test: a separate deposit or securities account that contains only proceeds consisting of cash or securities. (177) Typical lock box arrangements used in an “asset-based” receivables financing in the United States would usually meet the segregation test. Also, servicing arrangements in many securitizations, where the assignor acts as servicer for the assignee and the proceeds of the securitized assets are collected for the assignor through separate lock box arrangements, would, likewise, usually meet this test.

Even when the assignor receives and segregates the proceeds for the benefit of the assignee, however, the foregoing special proceeds rule does not affect the priority conflict between the assignee claiming an interest in the proceeds as proceeds and a person claiming by agreement an interest in the proceeds as its original collateral or its own property or, in the case of proceeds deposited to a deposit or securities account, holding a right of set-off. (178) Accordingly, the Convention does not provide a substantive rule governing the priority conflict between an assignee claiming an interest in funds in a deposit account as proceeds of the assigned receivable and a depositary bank claiming a security interest in the deposit account or a right of set-off or recoupment against the funds in the deposit account. Likewise, the Convention does not provide a substantive rule governing the priority conflict between an assignee claiming an interest in securities in a securities account as proceeds of the assigned receivable and a securities intermediary claiming a security interest in the securities. Furthermore, the Convention does not resolve the priority dispute between an assignee claiming an interest in funds in a deposit account or securities in a securities account as proceeds and a consensual transferee of the funds or securities from the account. These priority conflicts are left to national law. (179)

Furthermore, if the assignee does not receive the proceeds or if the assignor does not receive and segregate the proceeds on the instructions of and for the benefit of the assignee, the nature of the assignee’s interest in proceeds and the perfection and priority of that interest are left to national law. (180)

EXCEPTIONS

The Convention’s mandatory choice of law rules, (181) pointing to the law of the State in which the assignor is located to determine the assignee’s priority in the receivable, are expressly made subject to two exceptions.

The first exception concerns litigation relating to an assignment or an assigned receivable if the litigation arises in a court situated in a State that is not the State in which the assignor is located. In that case, the Convention preserves the power of the forum court not to apply a priority rule of the State in which the assignor is located if, but only if, “application of that provision is manifestly contrary to the public policy of the forum State.” (182)

Underscoring the Convention’s recognition of the need for, and attempt to provide to the greatest extent possible, ex ante certainty, this exception is clearly limited. To begin with, the Convention does not empower the forum court to disregard the applicable rule

The second exception relates to an insolvency proceeding commenced by or against the assignor in a State other than the State in which the assignor is located. In such a proceeding, the Convention preserves the power of the insolvency tribunal to give priority, despite a contrary rule under the law of the State in which the assignor is located, to preferential claims that arise by operation of law under the law of the forum State over the interest of the assignee in the assigned receivables if, under the law of the forum State, those claims would have priority over the interest of the assignee. (185) Examples of such preferential claims would typically include certain wage or tax claims. (186)

The second exception is independent of the first. The failure to pay the preferential claims need not rise to the level of being contrary to the manifest public policy of the forum State, but the preferential claims must generally have priority in insolvency proceedings in the forum State.

V. OPTIONAL PRIORITY RULES

The Convention contains several optional, alternative substantive rules for determining priority with respect to assigned receivables. Contracting States may elect to apply one of these substantive rules in substitution for their otherwise applicable national law rules. (187)

ALTERNATIVE PRIORITY RULES

The Convention offers several alternative priority rules. One alternative is a perfection and priority rule based on first in time of assignment. (188) Another alternative is a priority rule based on first in time of making a public notice filing relating to the assigned receivables. (189) A third alternative priority rule is based on first in time to notify the debtor of the assignment. (190) A fourth alternative, a variant of the third, is a rule that provides for perfection at the time of the assignment but priority over a competing assignee based upon the first to notify the debtor of the assignment. (191)

NOTICE FILING

For those Contracting States that adopt the alternative perfection and priority rule based on notice filing, the Convention provides a set of notice filing rules and procedures that provides a conceptual framework for an efficient registry and may lead to the creation of an international registry for notice filings relating to assigned receivables. (192)

VI. ADDITIONAL (OPTIONAL) CHOICE OF LAW RULES

The Convention contains, in Chapter V, additional choice of law rules that would apply to cross-border assignments and to cross-border receivables even if the Convention would not otherwise be applicable. (193) For example, the assignor of a cross-border receivable may be not located in a Contracting State, but a dispute concerning the receivable might arise in a court in the State in which the debtor is located. In that case, if the State in which the debtor is located is a Contracting State, the additional choice of law rules would be applied by that court. Moreover, assuming that the forum State is a Contracting State and that the State has not elected out of these provisions, even if the Convention otherwise applies to an assignment or to a receivable, the additional choice of law rules could be used to determine the law to be applied to resolve an issue concerning the assignment or the receivable that the Convention text does not itself resolve. (194)

Chapter V is part of the Convention except with respect to a Contracting State that “elects out” by declaration. (195) In this sense, the additional choice of law rules are optional.

These additional choice of law rules, subject to certain mandatory rules (196) and public policy (197) exceptions, provide, among other things, that the relationship between the assignor and the assignee be determined by the law chosen by their agreement or, in the absence of a choice, by the law of the State with which the contract of assignment is “most closely connected,” (198) that any form requirements for the contract of assignment are satisfied by compliance with the law of the State in which the assignor and assignee are located or, if they are located in different States, by compliance with the law of either State, (199) that the effectiveness of contractual limitations on assignment in a contract giving rise to a receivable be determined by the law governing that contract, (200) and, in an analog to Article 22, that the priority of an assignee’s interest in an assigned receivable over a competing claimant be determined by the internal laws of the State in which the assignor is located. (201)

VII. RELATION TO OTHER CONVENTIONS

The Convention will not prevail over any “international agreement” that “specifically governs” assignments of receivables otherwise governed by the Convention. (202) This is true whether the other international agreement is now in effect or subsequently comes into effect.

The only exception to the foregoing rule is the Unidroit Convention on International Factoring (the so-called “Ottawa Convention”). (203) The Convention will prevail over the Ottawa Convention. If, however, the Convention does not apply to the rights and obligations of the debtor, whether because the debtor is not located in a Contracting State or because the original contract is not governed by the law of a Contracting State, then the Ottawa Convention may still apply to govern the rights and obligations of the debtor. (204)

VIII. PROVISIONS RELATING TO SIGNATURE, RATIFICATION, AND ENTRY INTO FORCE

The Convention is open for signature by States for a period of two years. (205) A State may sign the Convention subject to ratification by its government. (206)

The Convention will enter into force on the first day of the month following the expiration of six months from the date of deposit with the Secretary-General of the United Nations of the fifth instrument of ratification, acceptance, approval, or accession. (207)

IX. SPECIAL PROVISIONS CONCERNING MULTI-UNIT STATES

The Convention has several special provisions concerning States that are comprised of more than one territorial unit. (208)

If a State has two or more territorial units (as is the case for the United States, which is comprised of fifty states, the District of Columbia, and various territories and possessions), the Convention location rules are to be applied by reference to the territorial unit rather than to the State as a whole. (209) In addition, references in the Convention to the law of a State mean, with respect to multi-unit States, the law in force in the territorial unit. (210)

The State may, however, at any time, by declaration, specify rules other than those provided in the Convention for determining the location of an assignor, an assignee, or a debtor within the State. (211) Furthermore, a State may, at any time, by declaration, specify other rules for determining the applicable law, “including rules that render applicable the law of another territorial unit of that State.” (212)

Moreover, if a State has two or more territorial units in which “different systems of law are applicable in relation to the matters dealt with in [the] Convention,” the State may, at any time, declare that the Convention extends to all territorial units or only to any one or more of them. (213) In the latter case, an excluded territorial unit is not considered to be in a Contracting State. (214)

Use of the declarations provided for in Articles 35 to 37 of the Convention will be of critical importance for the United States if it becomes a Contracting State. The declarations, if properly formulated and made by the United States when adopting the Convention, would significantly reduce inconsistency in results between the rules of the Convention and domestic commercial law in the United States with respect to matters addressed within the United States, without affecting the general application of the Convention for cross-border transactions.

Consider, for example, the case of an assignor of “accounts,” as defined in U.C.C. section 9-102(a)(2), which is a Delaware corporation with its chief executive office in New York. The normal Convention rules would locate the assignor in New York and require that perfection and priority of the assignment be governed by the internal law of New York. That result would be contrary to U.C.C. Article 9’s choice of law rules for transactions in which a security interest in accounts is granted by a “registered organization” (215) such as a Delaware corporation. Under U.C.C. Article 9’s choice of law rules, that assignor would be located in Delaware, and perfection and priority of the assignment would be governed by the internal law of Delaware. (216) Articles 36 and 37, however, would permit the United States to make a declaration that produces consistency with U.C.C. Article 9’s choice of law provisions. (217) Under those choice of law rules applicable to accounts and as included in the declaration, perfection, the effect of perfection and non-perfection, and priority would be determined by the internal law of Delaware. (218)

X. TRANSITION

Once the Convention becomes effective in a State, the Convention will apply to an assignment thereafter made by an assignor located in that State. (219) The Convention will not, however, apply to the rights and obligations of the debtor on the assigned receivable unless the original contract was concluded after the Convention became effective in either the State in which the debtor is located or the State whose law governs the original contract. (220) Furthermore, the priority status of an assignment made before the Convention’s effective date is not impaired by the Convention’s becoming effective. (221)

The Convention also has provisions protecting vested rights in the event of a later withdrawal from the Convention by a Contracting State. (222)

CONCLUSION

The Convention offers a major step forward in creating uniform rules, both substantive and choice of law, governing assignments of receivables in cross-border transactions. If the Convention is adopted by a large number of countries, the Convention could have a dramatic impact by removing significant legal barriers to growth in the financing of international trade and other business and consumer transactions.

(1.) The text of the Convention is set forth as the Appendix to the Report of UNCITRAL on its 34th Session (2001), GAOR supp. no. 17 (A/56/17). The Report may be found on the UNCITRAL Internet site at www.uncitral.org. The Convention was adopted by United Nations General Assembly Resolution 56/81. It is anticipated that UNCITRAL will issue a Commentary further to explain the provisions of the Convention. References in this paper to a provision of the Convention are in the form “Article —

(2.) A country is referred to in the Convention as a “State.” A State that adopts the Convention is referred to in the Convention as a “Contracting State.” The Convention has special provisions for States that are comprised of more than one territorial unit. See infra notes 208-18 and accompanying text. A state of the United States is referred to in this paper as a “state.”

(3.) See infra notes 64-65 and accompanying text.

(4.) See infra notes 66-67 and accompanying text.

(5.) See infra note 68 and accompanying text.

(6.) See infra notes 69-78 and accompanying text.

(7.) See infra notes 152-53 and accompanying text.

(8.) See infra notes 169-80 and accompanying text.

(9.) References in this paper to the U.C.C. are to the 2000 Official Text of the U.C.C. References in this paper to U.C.C. Article 9 are to revised U.C.C. Article 9 as set forth in the 2000 Official Text. Subject to minor variations, U.C.C. Article 9 has been enacted and is in effect in all fifty states and the District of Columbia. We do not address in this paper any non-uniform amendments to U.C.C. Article 9 that a particular State may have enacted.

(10.) We also provide some further explanations to the citations to U.C.C. provisions when we believe that further explanation would be helpful to readers who are not familiar with the provisions.

(11.) Of course, even if the Convention appears to be applicable by its terms to a transaction within its scope, the Convention rules may not necessarily be applied by a court located in a State that is not a Contracting State and whose choice of law rules do not require the application of the law of a Contracting State.

(12.) The meaning of “assignment” is discussed below. See infra notes 27-29 and accompanying text.

(13.) The meaning of “receivable” is discussed below. See infra notes 30-31 and accompanying text.

(14.) The Convention does not define “contract of assignment” as such. U.C.C. Article 9 would refer to the contract of assignment as the “security agreement.” U.C.C. [section] 9-102(a)(73) (“an agreement that creates or provides for a security interest”). As discussed in note 29, U.C.C. Article 9 would refer to the assignment as creating a security interest.

(15.) U.C.C. Article 9 would refer to the assignor as a “debtor.” U.C.C. [section] 9-102(a)(28) (“a person having an interest, other than a security interest or other lien, in the collateral … [or] a seller of accounts, chattel paper, payment intangibles, or promissory notes….”).

(16.) U.C.C. Article 9 generally would refer to the assignee as a “secured party.” U.C.C. [section] 9-102(a)(72) (“a person in whose favor a security interest is created or provided for … [or] a person to which accounts, chattel paper, payment intangibles, or promissory notes have been sold….”). Although U.C.C. sections 9-403, 9-404, 9-405, and 9-406 do refer to a secured party as an “assignee,” the term is limited by the context of those sections generally to a secured party that has a security interest (as that term is defined in U.C.C. section 1-201(37)) in collateral that consists of an account, chattel paper, or a general intangible.

(17.) Article 5(a).

(18.) Article 2(a). U.C.C. Article 9 would refer to the debtor as the “account debtor” if the person is obligated on a receivable consisting of an account, chattel paper, or a general intangible. U.C.C. [section] 9-102(a)(3). If the person does not fall within the definition of account debtor but is otherwise obligated on the receivable, U.C.C. Article 9 would refer to the person merely as an “other person obligated on collateral.” See, e.g., U.C.C. [section] 9-607. A debtor under the Convention would also include a “secondary obligor” (defined in U.C.C. section 9-102(a)(71)), if the person has guaranteed or otherwise acts as surety for the payment of the receivable, in this paper, we will use the Convention terms of assignor, assignee, and debtor rather than the U.C.C. Article 9 terminology of debtor, secured party, and account debtor or other person obligated on collateral. If there are multiple debtors liable on a receivable, for example, if there are co-borrowers, the obligation of each debtor is treated as a separate receivable. The claim of the beneficiary of a payment guaranty, which is a contractual right to the payment of a monetary sum, would be a separate receivable, and the guarantor would be the debtor on the guaranty obligation.

(19.) Article 3.

(20.) The Convention’s rules regarding the location of a party are of critical importance in dealing with questions relating to the priority of the assignee’s interest in the assigned receivable. See infra notes 152-53 and accompanying text.

(21.) Article 5(h). U.C.C. Article 9 provides location rules primarily for purposes of determining which jurisdiction’s law governs (i) whether a security interest is perfected and (ii) the effect of perfection or non-perfection and priority of the security interest. In certain circumstances, it will not be a single jurisdiction’s law that governs both sets of issues. See U.C.C. [section] 9-301.

U.C.C. Article 9 contains a rule to determine the location of an assignor who is an individual that is a different rule from that in the Convention. Under U.C.C. Article 9, a debtor (the assignor) who is an individual is located at his or her “principal residence.” It is not relevant whether the individual has a place of business or whether the receivable relates to the debtor’s business. U.C.C. [section] 9-307(b)(1). If, however, the individual resides or, as the case may be, principally resides in a country that does not maintain a public filing system by virtue of which the interest of an assignee that files in that system prevails over the interest of a subsequent lien creditor that garnishes the assigned receivable, then the individual, for U.C.C. Article 9 purposes, is viewed as located in the District of Columbia rather than the country of the individual’s residence or principal residence. U.C.C. [section] 9-307(c).

U.C.C. Article 9 contains no rules determining the location of an assignee as such.

(22.) Article 5(h). The Convention’s rule to determine the location of an assignor with places of business in more than one State would at first appear to be the same as the rule in U.C.C. Article 9 to determine, for these purposes, the location of an assignor with more than one place of business if the assignor is an “organization” as defined in U.C.C. [section] 1-201(28). U.C.C. Article 9 generally provides that, if a debtor that is an organization has more than one place of business, it is located where its chief executive office is located. U.C.C. [section] 9-307(b)(3). It would be a rare case in which the assignor’s central administration was not being exercised from the State in which the assignor’s chief executive office was located.

There are, however, two common cases in which U.C.C. Article 9’s assignor location rule for an organization with multiple places of business, otherwise fairly consistent with that of the Convention, is not applicable. See U.C.C. [section] 9-307(b) (“Except as otherwise provided in this section….”). The first common case is when the assignor is a “registered organization.” A registered organization is defined in U.C.C. [section] 9-102(a)(70) as an organization organized under the law of the United States or a single state of the United States, if the United States or the state must maintain a public record showing the organization to have been organized. Typical examples would be corporations, limited liability companies, and limited partnerships organized under the law of a single state in the United States. If the assignor is a registered organization, it is located, for U.C.C. Article 9 purposes, in the jurisdiction in which it is organized, not in the jurisdiction in which its chief executive office is located. U.C.C. [section] 9-307(e).

The second common case is that of an organization organized under the law of a country other than the United States. If the chief executive office of the foreign organization is located in a country that maintains a public filing system by virtue of which the interest of an assignee that files in that system prevails over the interest of a subsequent lien creditor that garnishes the assigned receivable, then the foreign organization is, for U.C.C. Article 9 purposes, located in that country. If, however, that country maintains no such filing system, the assignor, for U.C.C. Article 9 purposes, is viewed as located in the District of Columbia rather than the otherwise applicable country. U.C.C. [section] 9-307(c).

The impact of these varying location rules is explored further in this paper. See infra notes 116-51 and accompanying text.

(23.) Article 5(h). U.C.C. Article 9 contains location rules for persons obligated on the collateral but only in cases where the person obligated on the collateral is a depositary bank, securities intermediary, commodity intermediary, or letter of credit issuer or nominated person. See U.C.C. [subsection] 9-304 to 9-306.

(24.) Article 1(1)(a). An exception to this rule may occur in the context of a subsequent assignment. See infra notes 32-34 and accompanying text. The process by which a State becomes a Contracting State is discussed below. See infra notes 205-06 and accompanying text.

(25.) Article 1(3).

(26.) The scope of the Convention is also limited by specific exclusions. See infra notes 34-57 and accompanying text.

(27.) Article 2(a) (“transfer by agreement”).

(28.) This technique is available in some countries, most notably Germany. Under U.C.C. Article 9, a transfer of ownership for security purposes creates a security interest that secures an obligation. See U.C.C. [subsection] 9-109(a)(1) (“regardless of its form”), 9-202 (title to collateral immaterial).

(29.) Article 2(a). U.C.C. Article 9, like the Convention, applies to an assignment of certain receivables regardless of whether the assignment secures an obligation or is a true sale. This is the case with respect to receivables classified as accounts, chattel paper, payment intangibles or promissory notes as these terms are defined in U.C.C. section 9-102(a). U.C.C. [section] 9-109(a)(1), (3).

(30.) Article 2(a). A Convention receivable might be classified under U.C.C. Article 9 as an account, chattel paper, promissory note or other instrument, a payment intangible, or, conceivably, another general intangible, as those terms are defined in U.C.C. section 9-102(a). Since a payment intangible is defined in U.C.C. [section] 9-102(a)(61) as “a general intangible under which the account debtor’s principal obligation is a monetary obligation,” it would only be in a rare case that a Convention receivable would be classified as a general intangible that is not a payment intangible. A Convention receivable might also be classified as investment property, a deposit account, or a letter-of-credit right as those terms are defined in U.C.C. section 9-102(a). But see infra notes 34-57 and accompanying text (discussing the Convention’s exclusions). U.C.C. Article 9 creates these subclasses of rights to payment in order to, among other things, facilitate refined perfection and priority rules that accommodate differing commercial practices.

(31.) Some transactions involving such receivables are excluded from U.C.C. Article 9. See U.C.C. [section] 9-109(c), (d). However, U.C.C. Article 9 excludes the transactions through the use of exclusions from the scope of U.C.C. Article 9 rather than by excluding the transactions from the definition of the U.C.C. Article 9 collateral type in which the “receivable” might be classified. See U.C.C. [section] 9-109(d). The Convention also has exclusions from its scope based on the type of assignment or category of receivable. See the discussion of the Convention’s exclusions in notes 34-57 and accompanying text.

(32.) Article 1(2). In the case of a subsequent assignment, the initial assignee is a subsequent assignor. See Article 2(b).

(33.) Article 1(1)(b).

(34.) Some exclusions were necessary to avoid increasing the complexity of the Convention. Coverage of the excluded transactions or receivables would have likely entailed providing partial or conditional coverage or special rules, including possible special choice of law rules, in the affected markets. Compare, for example, U.C.C. sections 9-304 to 9-306, which provide special choice of law rules for security interests in deposit accounts, investment property, and letter-of-credit rights. Some of the exclusions also served to avoid potential conflict with other existing or anticipated conventions, e.g., the United Nations Convention on Independent Guarantees and Stand-by Letters of Credit, and the Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary currently being drafted at the Hague Conference on Private International Law. The United Nations Convention on Independent Guarantees and Stand-by Letters of Credit may be found at www.uncitral.org/english/texts/payments/guarantees.htm. A draft of the Hague Convention, together with related reports, is available at www.hcch.net/e/workprog/securities.html.

(35.) Article 4(2)(a). The Convention does not define “regulated exchange.” It is, however, likely that, in the context of a particular transaction, there will be a reasonable level of comfort as to whether the transaction is on a regulated exchange

(36.) Article 4(2)(b)

(37.) Article 4(2)(c).

(38.) Article 4(2)(f). The Convention does, however, address an interest in a deposit account as proceeds of a receivable. See infra notes 177-80 and accompanying text.

(39.) Article 4(2)(d).

(40.) Article 4(2)(g).

(41.) Article 4(2)(e). The Convention does not define “financial assets or instruments.” See U.C.C. [subsection] 8-102(a)(9) (defining “financial assets”), 8-103 (providing rules for determining whether certain obligations and interests are securities or financial assets). It is likely that, in most contexts, it will be quite clear whether the assets involved in a particular transaction are encompassed by the exclusion and that only a rare case at the margin should raise a question.

Article 4(2)(e) of the Convention would exclude from the Convention’s scope transactions governed by U.C.C. Article 8 and secured transactions in most investment property governed by U.C.C. Article 9, to the extent that the securities or other financial assets are held in the indirect holding system. Thus, transfers of rights to payment under directly held securities would, unless covered by another exclusion, be within the scope of the Convention. Transferees of directly held negotiable securities would be protected in many instances by the Convention’s deference to rights under negotiable instruments law. See infra note 44 and accompanying text. The significance of the failure of the Convention generally to exclude transfers of directly held nonnegotiable investment property lies chiefly in the fact that the Convention’s choice of law pointer with respect to perfection and priority, discussed below in notes 124 to 126 and accompanying text, differs from the choice of law pointers found in U.C.C. sections 8-110 and 9-305. In some circumstances, this divergence might lead to a change of existing practices with respect to transfers of directly held securities. To the extent that it is possible to structure transfers of financial asset receivables through the indirect holding system for investment property, it might be possible to avoid application of the Convention (and that divergence from domestic law). See infra notes 149-51 and accompanying text.

In any event, and notwithstanding the exclusion in Article 4(2)(e) with respect to receivables arising under indirectly held securities, the Convention does address an interest in a securities account as proceeds of a receivable. See infra notes 177-80 and accompanying text.

The exclusion in Article 4(2)(e) also would avoid the potential for conflicts with the projected Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary being prepared by the Hague Conference on Private International Law and the proposed European Union Collateral Directive (The Proposal for a Directive of the European Parliament and of the Council on Financial Collateral Arrangements, 2001 O.J. (c 180) 312, available at http://www.europa.eu.int/ index_en.htm).

(42.) Article 4(1)(a). This provision does not exclude from the Convention’s coverage either receivables owed by debtors who are consumers or assignments made by consumers. The provision only excludes assignments to an individual for the assignee’s consumer purposes.

(43.) Article 4(1)(b). Compare id. with U.C.C. section 9-109(d)(4) (making U.C.C. Article 9 inapplicable to “a sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of the business out of which they arose….”).

(44.) Article 4(3). Compare id. with U.C.C. [section] 9-331(a) (“[U.C.C. Article 9] does not limit the rights of a holder in due course of a negotiable instrument … [The holder takes] priority over an earlier security interest, even if perfected, to the extent provided in [U.C.C. Article 3]….”). The Convention contains no special protection for assignees of receivables that would be classified under U.C.C. Article 9 as nonnegotiable instruments or chattel paper. Cf. U.C.C. [section] 9-330 (providing priority for certain purchasers of those types of receivables when they take possession of nonnegotiable instruments, possession of tangible chattel paper, or control of electronic chattel paper). The Convention also does not contain any special protection for an assignee of a receivable when the receivable is a “transferable record” over which the assignee has “control” as such terms are used in section 7021 of the Electronic Signatures in Global and National Commerce Act (E-SIGN), 15 U.S.C.A. [section] 5021 (2001), or in section 16 of the UNIFORM ELECTRONIC TRANSACTIONS ACT (UETA). The UETA was promulgated by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1999 and has, as of January 1, 2002, been enacted in thirty-seven states and the District of Columbia. See http:// www.nccusl.org/nccusl/uniformact_factsheets/uniformacts-fs-ueta.asp. The final text of the UETA can be found at http://www.law.upenn.edu/bll/ulc/fnact99/1990s/ueta99.htm. The impact of the Convention on transactions involving the assignment of nonnegotiable instruments, chattel paper, and transferable records is further explored in the discussion of third party rights. See infra notes 124-26 and 131-53 and accompanying text.

(45.) Article 4(5)(a). Compare id. with U.C.C. [section] 9-109(d)(11) (making U.C.C. Article 9 inapplicable (with certain exceptions) to “the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder….”). Rents arising under a lease of real property are receivables within the meaning of the Convention

(46.) Article 4(5)(a)(i).

(47.) In the United States, whether the assignment of real property rents confers an interest in the real property is a matter of the law of the particular state in which the real property is situated. For a discussion as to how the United States will address choice of law issues among States of the United States, see infra notes 208-18 and accompanying text.

(48.) For a discussion of those situations in which an assignment of rents arising from the lease of real property does not confer an interest in the real property, see infra notes 130-32 and accompanying text.

(49.) Article 4(5)(a)(ii).

(50.) Again, this is a matter of the law of the particular state in which the real property is situated. This savings clause too is unlikely to have much significance with respect to real property situated in the United States. Typically, under state law in the United States, a mortgage encumbering the ownership interest in real property will not, as a matter of law, carry with it an assignment of rents arising from the lease of the real property. For this reason, when a fee mortgage is granted in the United States, rents are customarily assigned separately, either by a clause in the fee mortgage or by a separate instrument. See RESTATEMENT (THIRD) OF MORTGAGES [section] 4.2(b) & cmt. a (1997).

(51.) For a discussion of the possibility of restructuring some transactions in order to avoid application of the Convention, see infra notes 149-51 and accompanying text.

(52.) Article 41(1).

(53.) Article 41(2)(a).

(54.) Article 41(2)(b).

(55.) Article 41(3). These receivables fall into the class of receivables to which the Convention’s override of contractual anti-assignment terms applies. See infra notes 69-78 and accompanying text.

(56.) E.g., security interests in investment property, deposit accounts in commercial transactions, and letter-of-credit rights. See generally U.C.C. [section] 9-109.

(57.) E.g., assignments of receivables for wages, salary, or other compensation of an employee (often prohibited or restricted under non-U.C.C, state law) and transfers of interests in, and assignments of claims under, most insurance policies. See U.C.C. [section] 9-109(d)(3), (8).

(58.) These provisions are discussed infra at notes 83-95 and accompanying text.

(59.) Article 4(4). Compare id. with U.C.C. [section] 9-201(b) (providing that a transaction within the scope of Article 9 is “subject to any applicable rule of law which establishes a different rule for consumers”), and U.C.C. [section] 9-201(c) (providing that, in case of conflict between a rule set forth in Article 9 and a consumer rule, the consumer rule prevails). In addition, various provisions of part 4 of Article 9, dealing with third party rights, are subject to any other law that establishes a different rule for an individual account debtor or other person obligated on collateral if the affected obligation was incurred by the individual primarily for personal, family or household purposes. See U.C.C. [subsection] 9-403(e), 9-404(c), 9-405(c), 9-406(h).

(60.) Article 6. Cf. U.C.C. [section] 1-102(3) (variation by agreement generally permitted except as otherwise provided in the U.C.C.).

(61.) The Convention does use the term “writing” in other contexts. Article 5(c) defines “writing” in a manner to include an electronic record (“any form of information that is accessible so as to be usable for subsequent reference”), making clear that “signing” is not limited to manual application on a document. Compare the terms “writing” and “signed” as defined in U.C.C. Article 1. See U.C.C. [section] 1-201(46), (39). Also compare the terms “record” as defined in U.C.C. section 9-102(a)(69) (“information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form”) and “authenticate” as defined in U.C.C. section 9-102(a)(7) (“to sign … [or] to execute or otherwise adopt a symbol, or encrypt or similarly process a record in whole or in part, with the present intent of the authenticating person to identify the person and adopt or accept a record”).

(62.) Article 27, found in the optional Chapter V of the Convention, does provide a choice of law rule to determine which State’s law governs whether the form requirements of a contract of assignment have been satisfied. See infra notes 193-201 and accompanying text. U.C.C. Article 9 generally requires that the debtor authenticate a security agreement in order for a security interest to be enforceable unless the security interest has attached by virtue of the secured party’s possession or control of the collateral. See U.C.C. [section] 9-203(a), (b)(3).

(63.) The breadth of Article 14(1) is further explored in the discussion of third party rights. See infra notes 170-73 and accompanying text.

(64.) Bulk assignments have long been permitted under state law in the United States and are currently permitted by U.C.C. Article 9. See generally U.C.C. [subsection] 9-108, 9-201. The Convention’s validation of bulk assignments, however, represents a significant departure from current national law in many other countries.

(65.) Article 8(1). Compare id. with U.C.C. [section] 9-108(a) (“[A] description is sufficient, whether or not it is specific, if it reasonably identifies what is described.”). This U.C.C. Article 9 provision is supplemented by a “safe harbor” rule that makes sufficient a description that identifies collateral by “category” (e.g., a business vernacular term such as “accounts receivable”) or by “a type of collateral defined in the [U.C.C.] …” (e.g., “accounts”). U.C.C. [section] 9-108(b)(2)-(3).

(66.) Article 8(1)(b) (Present assignments of future receivables are “not ineffective … provided … that [the receivables] can, … at the time of the conclusion of the original contract, be identified as receivables to which the assignment relates.”). Compare id. with U.C.C. [section] 9-204(a) (“[A] security agreement may create or provide for a security interest in after-acquired [property].”). The Convention’s validation of present assignments of future receivables is likewise a departure from current national law in many countries.

(67.) Article 8(2).

(68.) Articles 2(a), 8(1). Some older cases suggest possible uncertainty, under commercial law in the United States, as to whether it is possible to make an assignment of an undivided percentage interest in a changing pool of receivables. See Steven L. Schwarcz, The Parts Are Greater than the Whole: How Securitization of Divisible Interests Can Revolutionize Structured Finance and Open the Capital Markets to Middle-Market Companies, 1993 COLUM. BUS. L. REV. 139, 150-51. But see RESTATEMENT (SECOND) OF CONTRACTS [section] 326(1) (1981) (indicating broad validation of formulations of partial assignments)

(69.) Article 9(1). Compare id. with U.C.C. [subsection] 9-406, 9-407, 9-408, (generally overriding anti-assignment restrictions). However, there are a number of differences between these U.C.C. Article 9 anti-assignment override provisions and the anti-assignment override provisions of the Convention. U.C.C. sections 9-406 and 9-408 apply not only to contractual limitations on assignment but also, unlike those of the Convention, to restrictions arising by statute or rule of law. U.C.C. [subsection] 9-406(f), 9-408(d). In addition, U.C.C. sections 9-406, 9-407, and 9-408 would, in contrast to the provisions of the Convention, not preserve the account debtor’s claim against the assignor for breach of the anti-assignment term. U.C.C. [subsection] 9-406(d)(2), 9-407(a)(2), 9-408(a)(2). A third difference relates to the potential liability of the assignee. See infra note 73. The Convention’s anti-assignment override is supplemented by Article 10(2), which provides for the transfer of a right securing payment of the assigned receivable notwithstanding a contractual term limiting assignment.

(70.) The anti-assignment override provisions in U.C.C. Article 9 are more explicit, rendering ineffective, in many cases, a contractual term that prohibits, restricts, or requires the consent of the account debtor to the assignment or provides that the assignment may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy. See U.C.C. [subsection] 9-406(d), 9-407(a), 9-408(a).

(71.) Articles 9(2), 10(3). With respect to the inability of the debtor to assert the claim for breach by way of recoupment or set-off, see infra note 98 and accompanying text.

(72.) Articles 9(2), 10(3).

(73.) The assignee bears no such risk under Article 9 after giving effect to the anti-assignment override provisions of U.C.C. sections 9-406, 9-407, and 9-408. See U.C.C. [section] 9-406 cmt. 5 (“ineffective” means that the anti-assignment term has “no effect whatsoever”).

(74.) Articles 9(3), 10(4).

(75.) Under U.C.C. Article 9, a contractual anti-assignment term in a syndicated loan agreement generally would be rendered ineffective under U.C.C. sections 9-406 and 9-408. However, given that a receivable arising from a loan made pursuant to a syndicated loan agreement would likely be classified under U.C.C. Article 9 as a promissory note (if the loan is evidenced by a promissory note) or a payment intangible (if it is not so evidenced), the borrower would, if the anti-assignment term were effective under other law, have no duty or obligation to recognize the buyer of the syndicated loan and would not be forced to deal with the buyer in order to obtain a discharge, even after receipt of notification of the transfer of the loan to the buyer. See U.C.C. [subsection] 9-406(b)(2), 9-408(d)

(76.) Article 8(3).

(77.) Id.

(78.) Article 40. In England and some other countries, it is customary for governmental debtors to rely on contractual rather than statutory assignment restrictions.

(79.) Article 10(1). The Convention’s treatment of supporting guaranties and collateral is generally consistent with treatment in U.C.C. Article 9 of “supporting obligations,” as defined in U.C.C. section 9-102(a)(77), and of supporting security interests and other liens. Compare U.C.C. sections 9-203(f) and (g), which provide for automatic attachment of a security interest in a supporting obligation or in a supporting security interest or other lien if a security interest in the supported collateral has attached, and U.C.C. sections 9-308(d) and (e), which provide for automatic perfection of a security interest in a supporting obligation or in a supporting security interest or other lien if a security interest in the supported collateral is perfected.

(80.) Article 10.

(81.) See supra notes 69-79 and accompanying text.

(82.) Article 12(1). Compare id. with U.C.C. [section] 3-416 (stating the warranties made on transfer of a negotiable instrument). U.C.C. Article 9 does not otherwise provide “default” representations analogous to those provided by the Convention, leaving this matter to the common law. In the typical receivables financing transaction in the United States, representations are negotiated by the parties.

(83.) Article 12(2).

(84.) Article 13(1). U.C.C. Article 9 permits notification of the assignment and a payment instruction to be given by the assignee upon the assignor’s default even in the absence of agreement by the assignor. U.C.C. [section] 9-607(a) (“If so agreed, and in any event after default….”).

(85.) Article 13(2).

(86.) “Writing” is defined to include an electronic record. See supra note 61.

(87.) Article 5(d). Likewise, U.C.C. section 9-406(b) provides that a notification of assignment is ineffective “if it does not reasonably identify the rights assigned….” However, U.C.C. section 9-406(a) requires that a notification be authenticated by the assignor or the assignee. The Convention contains no such requirement. Nevertheless, authentication would be prudent to lessen the likelihood of question by the debtor.

(88.) Article 16(1). U.C.C. Article 9 contains no provision as to the language of the notification.

(89.) Article 15(2). U.C.C. Article 9 contains no provision concerning a change in the currency or place of payment.

(90.) Article 17(2). U.C.C. Article 9 provides that, after the debtor receives notification of the assignment and payment instruction to pay the assignee, the debtor “may” obtain a discharge by paying the assignee and “may not” obtain a discharge by paying the assignor. U.C.C. [section] 9-406(a).

(91.) Article 17(7). U.C.C. section 9-406(c) contains a similar provision (“an assignee shall seasonably furnish reasonable proof that the assignment has been made”), and also includes the right of the debtor to pay the assignor if the proof is not provided. Although U.C.C. section 9-406(c) does not expressly impose a requirement that the assignee provide evidence of the chain of any prior assignments, such a requirement may well be implicit in the requirement of proof to be provided by the assignee of the assignee’s interest in the receivable.

(92.) Article 17(4). For example, if A assigns to B and then A also assigns to C, and both B and C notify the debtor of the assignment, the debtor may obtain a discharge by paying whichever of B or C was the first from whom the debtor received notification. U.C.C. Article 9 does not address this issue.

(93.) Article 17(3). For example, if A assigns to B and the debtor receives a payment instruction from B to pay B, and later the debtor receives another payment instruction from B, this one instructing the debtor to pay C, the debtor may obtain a discharge by paying C. U.C.C. Article 9 does not address this issue.

(94.) Article 17(5). For example, if A assigns to B who gives a notification of assignment to the debtor, then B assigns to C who gives notification of assignment to the debtor, and then C assigns to D who gives notification of assignment to the debtor, the debtor (having received notifications of two subsequent assignments) may obtain a discharge by paying D (the later of the subsequent assignments noticed). U.C.C. Article 9 does not address this issue.

(95.) Article 17(8). Accordingly, the debtor might obtain a discharge by paying the assignor, notwithstanding receipt of a notification of the assignment and payment instruction to pay the assignee, if, as between the assignor and the assignee, the assignor was entitled to the payment. This alternative for the debtor to obtain a discharge may not be available to the debtor under U.C.C. section 9-406(a) (“After receipt of the notification, the account debtor … may not discharge the obligation by paying the assignor.”). Nevertheless, if the person entitled to the payment is the one who receives the payment, the debtor may be able to claim a discharge under other law. See U.C.C. [section] 1-103. Moreover, U.C.C. Article 9 does not preclude a debtor from commencing an action for interpleader if the debtor is uncertain whom to pay. Such a procedural remedy is generally available in federal and state courts in the United States.

(96.) Article 18(1) (“[D]ebtor may raise against the assignee all defences and rights of set-off arising from the original contract, or any other contract that was part of the same transaction, of which the debtor could avail itself as if the assignment had not been made and such claim were made by the assignor.”). U.C.C. Article 9 provides a similar rule for a debtor that qualifies as an account debtor under U.C.C. Article 9. U.C.C. [section] 9-404(a)(1) (“[R]ights of an assignee are subject to … all terms of the agreement between the account debtor and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract….”). With respect to a debtor that does not qualify as an account debtor under U.C.C. Article 9, see RESTATEMENT (SECOND) OF CONTRACTS [section] 336(1) (1981) (“By an assignment the assignee acquires a right against the obligor only to the extent that the obligor is under a duty to the assignor….”).

(97.) Article 18(2) (“The debtor may raise against the assignee any other right of set-off, provided it was available to the debtor at the time notification of the assignment was received by the debtor.”). U.C.C. Article 9 provides a similar rule for a debtor that qualifies as an account debtor under U.C.C. Article 9. U.C.C. [section] 9-404(a)(2) (“any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives a notification of the assignment….”). With respect to a debtor that does not qualify as an account debtor under U.C.C. Article 9, see RESTATEMENT (SECOND) OF CONTRACTS [section] 336(2) (1981) (“The right of an assignee is subject to any defense or claim of the obligor which accrues before the obligor receives notification of the assignment, but not to defenses or claims which accrue thereafter….”).

(98.) Article 18(3).

(99.) For a discussion as to what the Convention means by a “signed writing,” see supra note 61.

(100.) Article 19(1). Compare id. with U.C.C. [section] 9-403(b) (“[A]n agreement between an account debtor and an assignor not to assert against an assignee any claim or defense that the account debtor may have against the assignor is enforceable by an assignee that takes an assignment: (1) for value

(101.) Article 19(2). Compare id. with U.C.C. [section] 9-403(c) (“[The validation rule of U.C.C. [section] 9-403(b)] does not apply to defenses of a type that may be asserted against a holder in due course of a negotiable instrument under Section 3-305(b).”).

(102.) See supra notes 58-59 and accompanying text.

(103.) Article 20(2). U.C.C. Article 9 provides a similar general rule in U.C.C. section 9-405(b)(2). Under U.C.C. Article 9, however, if the receivable has been fully earned and the debtor has not been notified of the assignment, the modification is binding upon the assignee only if made between the debtor and the assignor “in good faith.” U.C.C. Article 9 defines “good faith” as “honesty in fact and the observance of reasonable commercial standards of fair dealing.” U.C.C. [section] 9-102(a)(43). The Convention contains no such “good faith” limitation on pre-notification modifications. All pre-notification modifications of the original contract are binding upon the assignee under the Convention. Article 20(1).

(104.) Article 20(2)(b) (emphasis added). U.C.C. Article 9 provides a slightly different rule. It is true that under U.C.C. Article 9 the assignee is not bound with respect to a receivable not fully earned by performance even by a post-notification modification contemplated by the original contract unless the modification were made “in good faith” between the assignor and the assignee. However, if a modification were contemplated by the original contract, it is highly likely that the modification will be viewed to have met the good faith standard. More problematic is the provision in the Convention binding the assignee to a modification of the original contract relating to a not fully earned receivable if a “reasonable assignee” would have consented to the modification. There is no provision in U.C.C. Article 9 which makes a post-notification modification relating to a not fully earned receivable binding on the assignee if the modification was not made in good faith. This is the case regardless of whether a “reasonable assignee” would have otherwise consented to the modification. These differences between the Convention and U.C.C. Article 9 modification rules, however, are unlikely to be of significance in practice.

(105.) Article 20(2)(a). Of course, nothing in U.C.C. Article 9 prevents the assignee from consenting to the modification even if the assignee would not otherwise be bound by it.

(106.) Article 21. Compare id. with U.C.C. [subsection] 9-402 (“The existence of a security interest, … without more, does not subject a secured party to liability in contract or tort for the debtor’s [Convention assignor’s] acts or omissions.”), and 9-404(b) (“Subject to [certain consumer protective provisions], the claim of an account debtor [Convention debtor] against an assignor may be asserted against an assignee under subsection (a) only to reduce the amount the account debtor owes.”).

(107.) See supra notes 58-59 and accompanying text.

(108.) See supra notes 69-79 and accompanying text.

(109.) Articles 9(2), 10(3).

(110.) Article 5(g).

(111.) U.C.C. [section] 9-308(a). “Perfection” is a term that is not used in all legal systems and does not have a universal meaning. It is a term of art in the U.C.C. Article 9 priority scheme, but perfection is not always outcome-determinative. The primary significance under U.C.C. Article 9 of the security interest’s being perfected is that a security interest prevails over the interest of a lien creditor if the security interest is perfected at or before the time when the lien creditor status is achieved. U.C.C. [section] 9-317(a)(2)(A). See U.C.C. [section] 9-102(a)(52) (defining “lien creditor”). There are, however, circumstances under U.C.C. Article 9 in which even an unperfected security interest is superior to the lien of a lien creditor. See U.C.C. [section] 9-317(a)(2)(B). Conversely, even a perfected security interest does not, in all circumstances, have priority over all competing interests. Moreover, under U.C.C. Article 9’s choice of law rules, the law governing the perfection of a nonpossessory security interest in some collateral (e.g., an instrument) may not be the same as the law governing the effect of perfection or nonperfection and the priority of the security interest. See U.C.C. [section] 9-301(1), (3)(C).

(112.) Subpart 2 of part 3 of U.C.C. Article 9 generally sets forth the rules for achieving perfection, and subpart 3 of part 3 of U.C.C. Article 9 generally provides the rules for priority. Apart from U.C.C. section 9-317(a), the priority rules in subpart 3 are, as a general matter, rules to resolve priority conflicts between a secured party and competing secured parties and other purchasers and creditors that are not lien creditors.

(113) Article 22

(114.) Article 22.

(115.) See infra notes 181-86 and accompanying text.

(116.) U.C.C. [section] 9-102(a)(2).

(117.) See supra notes 21-22 and accompanying text.

(118.) See supra notes 14-16 and accompanying text.

(119.) U.C.C. [section] 9-307(e)

(120.) U.C.C. [section] 9-301(1).

(121.) The instances in which the Convention party location rules differ from those in U.C.C. Article 9 are summarized in the chart attached as Exhibit A.

(122.) See supra notes 21-22 and accompanying text

(123.) See supra note 21 and accompanying text.

(124.) Under U.C.C. Article 9, depending upon facts not investigated by the authors, the location of the New York branch of Credit Suisse (a bank not organized under the law of the United States) would be a state of the United States (most likely New York) or the District of Columbia (see U.C.C. [section] 9-307(f), (i)) and the location of Credit Suisse would be the District of Columbia (see U.C.C. [section] 9-307(c)).

(125.) Perfection of a sale of a loan would be automatic upon attachment under U.C.C. Article 9. U.C.C. [section] 9-309(3), (4).

(126.) A secured party or other purchaser that achieves perfection and priority for its interest in collateral under the law of a state of the United States but that does not comply with those priority rules of the State in which a foreign assignor is located which are applicable to that collateral may, under some circumstances, arguably risk loss or subordination of its interest in the collateral in the event that the assignor becomes the subject of an insolvency proceeding in that State. See, for example, in the context of an ancillary proceeding brought in the United States under section 304 of the Bankruptcy Code, 11 U.S.C. [section] 304 (2000), by an insolvency administrator appointed under the insolvency laws of another country, In re Compania General de Combustibles S.A., 269 B.R. 104 (Bankr. S.D.N.Y. 2001)

(127.) See supra notes 45-51 and accompanying text.

(128.) See, e.g., RESTATEMENT (THIRD) OF MORTGAGES [section] 4.2, cmt. b (1997) (“While a mortgage on rents is effective between the parties on execution and delivery, recordation will usually be required to protect the mortgagee of rents against claims of third persons, or to determine the priority of the mortgage as against such claimants.”).

(129.) See supra notes 45-51 and accompanying text.

(130.) Unfortunately, this problem may not be avoidable in the United States by means of a declaration under Article 41, since Article 41(3) may preclude a declaration with respect to this type of receivable. See supra notes 52-55 and accompanying text.

(131.) See U.C.C, [section] 9-102(a)(47) (defining “instrument”).

(132.) See U.C.C. [section] 9-102(a)(78) (defining “tangible chattel paper”).

(133.) U.C.C. [section] 9-313(a). Perfection by possession may in some instances provide the secured party with priority over another secured party that perfected its interest in the same collateral by filing a financing statement at an earlier time. See U.C.C. [section] 9-330.

(134.) U.C.C. [section] 9-301(2).

(135.) See supra note 44 and accompanying text.

(136.) See U.C.C. [subsection] 3-305, 3-306, 9-331.

(137.) “Electronic chattel paper” is defined in U.C.C. [section] 9-102(a)(31).

(138.) 15 U.S.C.A. [subsection] 7001-7031 (2001).

(139.) See supra note 44.

(140.) U.C.C. [section] 9-105.

(141.) U.C.C. [section] 9-330.

(142.) 15 U.S.C.A. [section] 7021(b), (c).

(143.) Id. [section] 7021(a), (d).

(144.) UETA, supra note 44, [section] 16(b), (c).

(145.) Id. [section] 16(a), (d).

(146.) See supra note 126.

(147.) Article 3.

(148.) Article 22 does not say this expressly, but that is the natural reading, especially when contrasted with the explicitness of Article 3 as to when “internationality” is tested. U.C.C. Article 9 does provide rules specifying the impact of a number of subsequent events. See, e.g., U.C.C. [section] 9-316.

(149.) The Convention would nevertheless apply to a wholly domestic assignment of a receivable if an earlier assignment of the receivable were covered by the Convention. See supra notes 33-34 and accompanying text. Similarly, the Convention would nevertheless apply to a wholly domestic assignment of a receivable if the assignor were located in one State and the debtor were located in another State (as determined under the Convention’s party location rules).

(150.) For example, in a real property acquisition finance transaction, a party that is, under the Convention’s party location rules, located outside of the United States and that is proposing to buy real property situated in the United States, might form a subsidiary organized under the laws of a state of the United States to acquire the real property and to borrow from the financing lender the funds to pay the purchase price. Any rents arising from a subsequent lease of the real property would be assigned to the lender by that subsidiary, which, under the Convention’s party location rules, would be located in the United States. Assuming that the lender and the lessee also were, under the Convention’s party location rules, located in the United States, there would be no “internationality” in the finance transaction to cause the Convention to apply See supra notes 20-23 and accompanying text.

(151.) For example, a party intending to assign a nonnegotiable instrument, nonnegotiable chattel paper or a “transferable record” might first transfer it to a securities account of the assignor, and the assignment might then be made through the indirect holding system by credit to a securities account of the assignee. The Convention does not apply to assignments made through the indirect holding system. See supra note 41 and accompanying text.

(152.) Article 22.

(153.) Id. The choice of law rule with respect to a true sale occurring in the United States is hardly certain. Cf., e.g., In re Best Prods. Co., Inc., 168 B.R. 35 (Bankr. S.D.N.Y. 1994) (dealing with similar choice of law issues in the context of a fraudulent transfer).

(154.) Article 22.

(155.) Article 5(m).

(156.) Article 5(e).

(157.) Article 5(f).

(158.) 11 U.S.C. [subsection] 101-1330 (2000).

(159.) See generally Butner v. United States, 440 U.S. 48 (1979).

(160.) 11 U.S.C. [subsection] 101, 544(a)(i)-(ii) (2000)

(161.) For example, under 11 U.S.C. sections 101, 544, 547, 548, and 549, respectively, unperfected security interests and preferential, fraudulent, or unauthorized post-petition transfers in favor of an assignee may be avoided by the bankruptcy trustee.

(162.) U.C.C. [section] 9-322(a).

(163.) See, e.g., U.C.C. [subsection] 9-330, 9-331.

(164.) See supra notes 64-65 and accompanying text.

(165.) See supra notes 66-67 and accompanying text.

(166.) See supra note 68 and accompanying text.

(167.) Article 8(1). Article 8(1) would not impair 11 U.S.C. section 552, which in certain instances operates to cut off pre-petition security interests in post-petition after-acquired receivables. 11 U.S.C. section 552 is not a general law that does not recognize present assignments of future receivables

(168.) The only possible exception being the validity of assignments of undivided interests in receivables. See supra note 68.

(169.) Article 5(j). Compare id. with U.C.C. [section] 9-102(64) (defining “proceeds” to mean: “(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral

(170.) Article 14(1).

(171.) Id.

(172.) Id.

(173.) Article 14(2)

(174.) Article 24(1). This provision literally provides that, if an assignee that receives proceeds would have prevailed over a competing claimant as to the receivable giving rise to the proceeds, the assignee prevails over any third party proceeds claimant, not only over a “competing claimant” as defined in Article 5(m).

(175.) Article 24(2)(a).

(176.) Article 24(2)(b).

(177.) Id.

(178.) Article 24(3).

(179.) See, e.g., U.C.C. [subsection] 9-327, 9-328, 9-340.

(180.) U.C.C. Article 9 contains much broader and more complex substantive priority rules with respect to proceeds. See, e.g., U.C.C. [subsection] 9-203(f), 9-315, 9-322.

(181.) The Convention also contains, in Chapter V, choice of law rules that are subject to an “opt out” privilege. See infra notes 193-201.

(182.) Article 23(1).

(183.) The heightened standard set by the modifier “manifest” is familiar in the U.C.C. See, e.g., U.C.C. [subsection] 1-102(3), 9-603 (referring to standards that are not “manifestly unreasonable”).

(184.) Article 23(2). The Convention’s reference to “mandatory rules” does not encompass every rule of law that the parties may not vary by agreement. Rather, the Convention uses that term in the European private international law sense to refer to domestic rules that must be applied, even in an international situation, without regard to choice of law rules and without regard to the content or policy of the otherwise applicable rule. See, e.g., Article 7 of the (European Union) Convention on the Law Applicable to Contractual Obligations, discussed in Note, Article 7(1) of the European Contracts Convention: Codifying the Practice of Applying Foreign Mandatory Rules, 114 HARV. L. REV. 2462 (2001). Also, see Article 8(2) of the draft Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary (Hague Conference on Private International Law) (“This Convention does not prevent application of those provisions of the law of the forum which, irrespective of rules of conflict of laws, must be applied even to international situations.”).

(185.) Article 23(3). It may reasonably be expected that most assignor insolvency proceedings will take place in the State in which the assignor’s place of business is located or, if the assignor has more than one place of business, in the State in which its central administration is exercised. Cf. the proposed European Union Convention on Insolvency Proceedings, Article 3 [section] 1 (“The courts of the [State] within the territory of which the centre of a debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings.”)

(186.) A claim under 11 U.S.C. section 506(c) might be an example of such a preferential claim in a United States bankruptcy case.

(187.) See Articles 1(5), 42.

(188.) Annex, Section III. This approach is based on German law.

(189.) Annex, Section I. This approach is derived from the U.C.C. in the United States and the Personal Property Security Acts found in most Canadian provinces and territories.

(190.) Annex, Section IV. This approach is derived from the rule in the English case of Dearle v. Hall 3 Russ. 1, 38 E.R. 475 (M.R. 1823)

(191.) Annex, Articles 7, 9. See Article 42(1)(e).

(192.) Annex, Section II. Contracting States are free to adopt Sections I and II of the Annex or either of the Sections.

(193.) Chapter V (Articles 26-32).

(194.) Article 26(b).

(195.) Articles 1(4) and 39 permit a Contracting State to elect not to be bound by Chapter V.

(196.) Article 31.

(197.) Article 32.

(198.) Article 28. This rule militates strongly in favor of utilization of a choice of law provision to enhance certainty and avoid litigation. Cf. RESTATEMENT (SECOND) OF CONFLICT OF Laws [section] 187 (1971)

(199.) Article 27.

(200.) Article 29.

(201.) Article 30.

(202.) Article 38(1). The meaning of the term “international agreement” will be a matter of judicial interpretation. During the Commission’s final deliberations, it was suggested that the commentary should state that the regulations and directives of regional organizations should be treated as international agreements within the meaning of Article 38. The Report states:

That suggestion was objected to. It was stated that such an approach would

risk undermining the effectiveness of the international legislative process

in general and the draft Convention in particular. It was also observed

that, for that reason, obligations between members to [sic] various

regional organizations should not interfere with obligations undertaken in

multilateral legislative texts.

Report of UNCITRAL on its 34th Session, supra note 1, at para. 73. Thus, the Report reflects that there was no consensus that regional agreements be given supremacy under Article 38.

(203.) The text of the Ottawa Convention may be found on Unidroit’s Internet site at www.unidroit.org/english/conventions/c-main.htm.

(204.) Article 38(2).

(205.) Article 34(1).

(206.) Article 34(2).

(207.) Articles 33, 45(1).

(208.) Articles 35-37.

(209.) Article 36.

(210.) Article 37.

(211.) Article 36.

(212.) Article 37.

(213.) Articles 35(1), (2), (5).

(214.) Articles 35(3), (4).

(215.) “Registered organization” is defined in U.C.C. section 9-102(a)(70).

(216.) U.C.C. [subsection] 9-102(a)(70), 9-301(1), 9-307(e).

(217.) The declaration might perhaps restate the choice of law rules of subpart 1 of part 3 of U.C.C. Article 9.

(218.) See U.C.C. [subsection] 9-301(1), (3)(C), 9-307(e).

(219.) Article 45(3).

(220.) Id.

(221.) Article 45(4).

(222.) Article 46. The Convention refers to such a withdrawal as a “denunciation.”

(223.) Article 5(h)

(224.) U.C.C. [section] 9-307.

EXHIBIT A

CHART REFLECTING DIFFERENCES IN ASSIGNOR LOCATION

RULES BETWEEN THE CONVENTION AND U.C.C. ARTICLE 9

Location of the Location of the

Assignor under the Assignor under U.C.C.

Assignor Convention (223) Article 9 (224)

Individual. The individual’s The individual’s

place of business residence or, if there

or, if the individual is more than one, the

has more than one individual’s principal

place of business, residence. Whether

the place where the the individual has

individual centrally a business is not

administers his or relevant. However, if

her business. If the the individual’s

individual does not residence or, as the

have a place of case may be, principal

business, the residence is in a

individual is located country that does not

where the individual maintain a public

habitually resides. filing system by virtue

of which the interest

of an assignee that

flies in that system

prevails over the

interest of a

subsequent lien

creditor that garnishes

the assigned

receivable, then the

individual, for U.C.C.

Article 9 purposes, is

viewed as located in

the District of

Columbia.

Corporation, limited The assignor’s place The state in which the

partnership, limited of business or, if the assignor is organized.

liability company, or assignor has more than

statutory business one, the place of the

trust organized central administration

under the law of a of the business.

single state of the

United States.

Other legal entities The assignor’s place The legal entity’s

organized within the of business or, if place of business or,

United States. the assignor has if there is more than

more than one, the one, its chief

place of the central executive office.

administration of the However, if the legal

business. entity’s place of

business or, as the

case may be, chief

executive office is

in a country that

does not maintain a

public filing system

by virtue of which the

interest of an

assignee that files

in that system

prevails over the

interest of a

subsequent lien

creditor that

garnishes the

assigned receivable,

then the legal entity,

for U.C.C. Article 9

purposes, is viewed as

located in the

District of Columbia.

Legal entities The assignor’s place The same as the

organized outside of of business or, if Convention. However,

the United States. the assignor has more if the country so

than one, the place determined does not

of the central maintain a public

administration of the filing system by

business. virtue of which the

interest of an assignee

that files in that

system prevails over

the interest

of a subsequent lien

creditor that

garnishes the

assigned receivable,

then the legal entity,

for U.C.C. Article 9

purposes, is viewed as

located in the

District of Columbia.

U.S. branch or The assignor’s place Depending on various

agency of a foreign of central facts, the branch or

bank. administration, i.e., agency is viewed as

the bank’s global located in a particular

head office. state of the United

States or in the

District of Columbia.

It is not located

in the country where

the foreign bank’s

global head office is

located.

Foreign air carrier The assignor’s place The State in which is

under the Federal of business or, located the designated

Aviation Act of if the assignor office of the carrier’s

1958, as amended. has more than agent for service of

one, the place of process.

the central

administration

of the business.

Harry C. Sigman and Edwin E. Smith *

* Mr. Sigman is a member of the California Bar, practicing in Los Angeles, California, where he concentrates on commercial law matters as a consultant to law firms and financial institutions throughout the country. A member of the American Law Institute, he has taught at law schools in Belgium, the Netherlands, Israel, and Switzerland, as well as at University of Southern California and University of California at Los Angeles. He was a U.S. delegate to UNCITRAL on the Convention on the Assignment of Receivables in International Trade.

Mr. Smith, a partner at Bingham Dana LLP, Boston, Massachusetts, is the immediate past Chair of the Uniform Commercial Code Committee of the Business Law Section of the American Bar Association and is a Uniform Law Commissioner for the Commonwealth of Massachusetts. Like Mr. Sigman, Mr. Smith was a U.S. delegate to UNCITRAL on the Convention on the Assignment of Receivables in International Trade.

The authors wish to thank the other U.S. delegates to UNCITRAL on the Convention–Harold Burmah of the U.S. State Department, Professor Neil B. Cohen of Brooklyn Law School, and Professor Peter Winship of Southern Methodist University Law School–for their companionship and support and the intellectual exchanges that stimulated the writing of this paper. The authors are also grateful for the specific comments on earlier drafts of this paper received from Professor Neff B. Cohen, Professor Steven L. Harris, John F. Hilson, Steven O. Weise, and Professor Peter Winship. The views expressed in this paper, however, are solely those of Messrs. Sigman and Smith and do not represent the views of the other U.S. delegates, of any office or agency of the United States or of any of those who have commented to the authors on earlier drafts.

This paper is based in part on a prior paper that summarized an earlier draft version of the Convention. See Harry C. Sigman & Edwin E. Smith, The Draft UNCITRAL Convention on Assignments of Receivables in International Trade: A Summary of the Key Provisions as Completion Draws Near, 33 UCC L.J. 344 (2001).