Under Article 9 of the Uniform Commercial Code security interests in most personal property securing business debt are perfected by filing a UCC financing statement in the appropriate central filing office. With few exceptions, such as perfection of purchase money security interests, the first creditor to file a correctly prepared financing statement in the proper location has priority over a security interest perfected in the same property by a later filing. Prospective lenders search the UCC filing office records under the “name” of the proposed borrower to confirm that there is no indication on file that any other party may have a prior perfected security interest against the proposed borrower covering the offered collateral. Filing offices index UCC files by the debtor’s “name.”
Internet and electronic fraud losses are increasing drastically for financial institutions. Although the fraudster has ultimate liability for the fraud loss, the fraudster rarely can be found so the liability for the fraud loss generally is shifted to the bank. This article explains how the bank can reduce its liability for Internet and electronic fraud losses with respect to commercial accounts if the bank utilizes reasonable security procedures and a properly drafted agreement with its customer.