1972, October, Pg. 7. Protecting Security Interests in Aircraft: U.C.C. v. U.S.C.

• Author: by J. Scott Hamilton

1 Colo.Law. 7

Colorado Lawyer

1972.

1972, October, Pg. 7.

Protecting Security Interests in Aircraft: U.C.C. v. U.S.C

7Vol. 1, No. 12, Pg. 7Protecting Security Interests in Aircraft: U.C.C. v. U.S.C.by J. Scott HamiltonJ. Scott Hamilton, Denver, is a private practitioner specializing in legal matters relating to aviation. He is a member of the Colorado and Denver Bar Associations and the Lawyer-Pilots Bar Association. During the winter quarter of the 1972-1973 academic year Mr. Hamilton will teach a course in aviation law at the University of Denver College of Law.The law governing the perfection of security interests in aircraft and the ranking of competing security interests attached to these special chattels has long puzzled and frustrated financers, repairmen, component suppliers, and lawyers.

The basic problem has been the interpretation of state statutes regarding security interests in chattels in general and the interplay of these statutes with federal statutes regarding security interests in aircraft in particular; a plethora of differing state statutes has produced a confusion of judicial interpretations.

Although this area of the law has not yet ascended from that murky confusion to crystal clarity, the Uniform Commercial Code (U.C.C.), adopted by nearly all of the states, should greatly facilitate resolution of these cases.

This article focuses on protecting the financer's security interest in aircraft, for the benefit of counsel whose client is contemplating either the purchase of an aircraft or the extension of credit against an aircraft as collateral.

Origin of LiensLiens upon aircraft may arise in three ways. The financer's lien arises out of an aircraft or component purchase under a secured financing device such as a chattel mortgage, conditional sales contract, or equipment trust (C.R.S. 155-9-201 through -208). To protect this security interest you must be aware of the other potential sources of liens which may be asserted against the aircraft.

Liens may also arise out of the furnishing of materials or services to the aircraft: mechanics' and materialmen's liens and liens for storage. These are generally possessory in nature. As with financers' liens, service liens arise under state law (C.R.S. 86-1-4 and 86-2-1).

A third lien source is the federal government, which may claim against the aircraft for non-payment of taxes (26 U.S.C. § 6321 et seq.) or to assure payment of a "civil penalty" (fine) assessed against the owner for violation of federal aviation regulations (49 U.S.C. § 1471(b)). In addition the government may seize the aircraft outright where it is used as the

8offending res in a criminal violation, such as smuggling, although such an in rem proceeding is not actually a matter of lien law.Financers' Liens:The Code and the ActUnder today's law, financers' security interests in aircraft differ from security interests in other chattels. The U.C.C. sets forth the requirements for perfecting the security interest of a financer as to ordinary chattels.

The first step in this process is "attachment." Under the U.C.C. a security interest attaches to a chattel when (1)...