Why should you care about Article 9 of the Uniform Commercial Code as a business owner? The answer is simple: whenever you enter into a financing arrangement, equipment lease or any transaction where an obligation is secured by collateral, UCC Article 9 is there in the background to protect you as long as the agreements and documents comply with its provisions.
Let’s say you are entering into a transaction where you will provide financing, you’ll need to have a basic understanding of how UCC Article 9 helps protect your interest in the collateral.
As you might expect, Article 9 of the Uniform Commercial Code is a complicated statute, and you’ll need the help of a professional to navigate it. If you’re a lender, you’ll want to make sure the documents you are using have been vetted by an attorney so they comply with the UCC in your state.
If you’re a borrower, you’ll want to hire a lawyer to confirm the documents aren’t overreaching and include the protections offered by the UCC.
A general understanding of how UCC Article 9 works and what to look for will benefit you regardless of whether you’re a lender, borrower, buyer or seller. Contact now at info@bblawpllc.com or 212-729-1477 to get immediate free consultation regarding alternative business financial transactions, commercial litigation, commercial collections and commercial real estate transactions.
Understanding Article 9 of the Uniform Commercial Code
When it comes to loans, borrowers have many protections under law. However, creditors also require protection in the event of a loan default. It was for this purpose that the Uniform Commercial Code’s Article 9 was first published in 1952, and later revised in 2001.
UCC Article 9 has been a guiding standard for borrower-creditor relations for well over 60 years. Under Article 9, if a debtor defaults on their debt, the creditor may repossess the secured property.
For example, suppose that Robert brings a computer to be serviced by Stephen.
Upon completing the repairs, Robert does not have the funds to pay for the work so Stephen keeps the laptop as collateral. Under state laws in general, if Robert and Stephen are residents of the same state, and the business they are engaged in takes place in that state, then there would be no further complications.
What is UCC Article 9 Used For?
The main objective of Article 9 of the Uniform Commercial Code is to help lenders become secured creditors. Article 9 regulates security interests in personal property as collateral for an outstanding debt.
This means that even if a debtor defaults on a payment, or the performance of certain duties, the creditor still has the means to receive due compensation from the seizure/sale of the debtor’s personal property, as outlined in a previously validated security agreement.
Collateral could include personal property such as:
- Stocks
- Inventory
- Equipment
- Fixtures
- Vehicles
- Bonds
- Personal possessions
In essence, UCC Article 9 serves as an important guideline to ensure that both parties (the debtor and the creditor) are treated fairly.
Implementation Of Article 9 Of The Uniform Commercial Code
There are 3 primary concepts that inform the implementation of UCC Article 9:
- Priority
If no creditors can claim perfection for any reason, then priority is granted in the order that security agreements were attached.
- Attachment
An attachment is when a debtor and creditor agree to create a security interest in one of the debtor’s pieces of personal property.
This should be outlined in the security agreement between the two parties. The security agreement should be signed by both parties, include a description of the property that will serve as collateral, and make it clear that the creditor has a security interest in the property.
Perfection
The creditor achieves “perfection” when he creates a consensual agreement with the borrower, obtains and files a validated security agreement, and also files a UCC-1 financing form as a matter of public record.
In cases where there are multiple creditors seeking compensation from the same piece of property, the creditor that is the first to achieve these conditions may claim priority over other claimants.
Revisions to Article 9
The UCC undergoes periodic review and revision to clarify the laws and update the provisions based on new technologies and economic realities.
Article 9 was revised in 2002 to substantially modernize and expand the scope of what can be used as collateral to include credit card receivables, electronic chattel paper, accounts receivable, and business inventory.
Although Article 9 goes into great detail to incorporate the many loans secured by various types of collateral, there are still disputes over who has ownership priority of an asset subject to a security interest transaction.
Clarifications to Article 9 were adopted in 2010 to previous changes (originally made in 1998) that streamlined the rules for attachment and perfection. These changes specify that the filings required under Article 9 should be done in the location of the debtor and naming the debtor under the name filed when it was organized with the state (if a business) or the individual’s name (if the debtor is an individual).
We Speak The Language
To those unfamiliar with it, complying with the UCC can be extremely intimidating. Our business litigation lawyers at New York City and Rockland County deal with the sometimes arcane provisions of these laws every day. We know how to make them work for you.
We understand the nuances of the law and keep up to date on any and all revisions to the code. We focus our practice solely on representing businesses, our clients can rely on us for our depth of knowledge and experience in all areas of business financial transactions, commercial litigation, commercial collections and commercial real estate transactions.
If your business is seeking an attorney who knows the law and knows how business works, please contact at Berkovitch & Bouskila PLLC info@bblawpllc.com or 212-729-1477 in New York City and Rockland County, today.
Or set up a free consultation online!
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