UCC 9-313 Comment 3 Interpretation - Control vs Possession for Investment Securities

This is exactly the kind of technical distinction that trips up even experienced secured transaction attorneys. I've seen deals fall apart because lenders assumed possession was enough without checking the Article 8 delivery requirements.

The certificates are endorsed in blank, so delivery should be satisfied. My concern is more about Comment 3's language suggesting that 9-314 control might be the 'exclusive' method for investment property perfection.

The exclusivity language in Comment 3 is often misunderstood. It's saying that when 9-314 control is available, it's the most reliable method, not that possession is invalid. For certificated securities, both methods can work, but control provides better protection against competing claims.

Did you run into any issues with the transfer agent cooperation? Some of these smaller companies don't have established procedures for acknowledging control agreements.

We did face some pushback initially. The transfer agent wasn't familiar with UCC control agreements. We had to provide them with sample language and walk through the process. Most transfer agents will cooperate once they understand their role is just acknowledging our control, not taking possession themselves.

This is why I always recommend running documents through verification tools before finalizing any securities collateral arrangements. Saves so much time catching these issues early.

Good question! UCC 9-313 Comment 3 serves as a cross-reference to clarify when possession under 9-313 might overlap with control under 9-314. For investment securities, both articles can potentially apply, so Comment 3 helps resolve conflicts between the two perfection methods.

Ah okay, so it's like a traffic direction comment saying 'if you're dealing with investment securities, 9-314 control is usually your better bet even though 9-313 possession might also work.' Makes more sense now.

Exactly right. The UCC drafters included Comment 3 because investment securities are unique - they can potentially be perfected through multiple methods, and the comment helps practitioners choose the most effective approach.

Interesting - how does the tool handle the Comment 3 analysis specifically? Does it provide guidance on when to choose possession vs control?

It analyzes your collateral descriptions and perfection methods against the UCC sections, including the Comment guidance. For investment securities, it specifically checks whether your approach satisfies both Article 8 delivery requirements and UCC Article 9 perfection standards. Really helpful for catching these overlapping rule situations.

That sounds useful for these gray area situations. I'm always nervous about investment securities collateral because of these multiple perfection pathways.

Many large lenders do prefer control because it's cleaner and provides better protection against competing claims. But possession can be perfectly adequate for smaller deals where the cost and complexity of establishing control aren't justified.

Makes sense. I guess it's like choosing between filing a UCC-1 and taking possession of personal property - both might work, but one gives you better peace of mind.

We have blank endorsements and physical possession, which should satisfy 8-301. But you're right that Comment 3 creates this linkage between possession perfection and Article 8 delivery that adds a layer of complexity.

Blank endorsements plus possession should be sufficient for delivery under 8-301. The borrower's counsel might be overreaching, but it's worth double-checking your documentation to make sure everything aligns with both Article 8 and Article 9 requirements.

Agreed. If your Article 8 delivery is solid, then Comment 3 shouldn't create any perfection issues. The borrower's counsel might be fishing for problems that don't actually exist.

Ha! I feel the same way. Equipment liens are so much more straightforward - file your UCC-1, describe the collateral, done. None of this Comment 3 cross-referencing business.

Securities collateral can be lucrative though. These deals often involve higher dollar amounts and sophisticated borrowers. Worth learning the rules even if they're more complex.

That's a good point about the loan representations. We did warrant proper perfection, so even if possession technically works, control might be the safer path to avoid any breach claims.

Exactly. Sometimes it's worth taking the extra step to eliminate any grey areas, especially when you're dealing with sophisticated counsel who might challenge your perfection method.

This is another area where document verification tools can help - they can check whether your perfection method aligns with your loan agreement representations and flag any potential inconsistencies before they become issues.

Great question! Comment 3 doesn't actually change the first-to-file-or-perfect priority rules in 9-322. If you perfect by possession first, you should have priority over a later control perfection. But control does provide better protection against certain types of competing claims, like those from securities intermediaries.

So Comment 3 is more about best practices and completeness of perfection rather than affecting the basic priority rules. That makes sense - it's guidance about which method to choose, not about changing the fundamental priority structure.

That's excellent advice. Do you use any particular documentation approach to ensure both articles are properly addressed?

I typically include a specific section in the security agreement that addresses both the Article 8 delivery requirements and the Article 9 perfection method. It helps ensure that Comment 3's cross-reference requirements are clearly satisfied in the documentation.

Smart approach. Having it clearly documented probably also helps if you ever need to explain your perfection method to a court or competing creditor.

That's a sobering point about bankruptcy trustee challenges. Even if possession technically works, control might provide better litigation protection down the road.

Exactly. Bankruptcy trustees are sophisticated and will challenge any perfection method that seems questionable. Control arrangements tend to be more bulletproof in those contexts.

This is why I always recommend running final documentation through verification tools before closing. Better to catch potential trustee challenges early than deal with them in bankruptcy court later.

Good point about the bankruptcy context. I hadn't considered how Comment 3 might play out in front of a trustee who's looking for any reason to challenge secured creditor claims.

This dual perfection strategy makes a lot of sense, especially given the high dollar amount involved. I'm relatively new to securities collateral work, but it seems like having both possession and control would eliminate any Comment 3 ambiguity entirely. Is there typically much additional cost or complexity in establishing control after you already have possession? I'd imagine the transfer agent documentation might be the main hurdle, but if it protects a $2.8M loan, that seems like a worthwhile investment.