March 09, 2023
By: Katelyn J. Dougherty, Esq.
As a business owner, you are likely engaged in various financial transactions, such as obtaining loans, leasing equipment, or possibly even selling goods on credit. To protect your interests and secure your assets, it is crucial to understand the provisions of Article 9 of the Uniform Commercial Code (UCC).
Article 9 of the UCC is a vital piece of legislation that governs secured transactions. It provides a framework for creating, perfecting, and enforcing security interests in personal property. Whether you are a creditor extending credit or a debtor seeking financing, Article 9 plays a significant role in safeguarding your rights.
Here are some key aspects of Article 9 that every business owner should be familiar with:
- Scope: Article 9 of the Uniform Commercial Code (UCC) governs any transaction where a creditor acquires a security interest in personal property as collateral to secure a debt or another form of obligation. It encompasses a wide range of scenarios, including loans, leases, consignments, and sales on credit.
- Creation of Security Interest: Article 9 outlines the requirements for creating a valid security interest. Generally, a security agreement must be established, which identifies the collateral, provides an indication of the debtor’s intent to grant a security interest, and may require filing a financing statement.
- Perfection: In the realm of secured transactions, perfection is the crucial process of securing priority rights in the collateral, giving it precedence over competing claims. Article 9 of the UCC offers several avenues for achieving perfection, one of which involves filing a financing statement with the relevant state authority. Once perfected, the security interest holds a superior position over unperfected or subsequently perfected interests. This provides a strong and legally recognized claim to the collateral, enhancing the creditor’s rights and protecting their interests.
- Collateral Description: Accurately describing the collateral in the financing statement is crucial for perfection. The description should be sufficient to reasonably identify the collateral, enabling third parties to determine the assets covered by the security interest.
- Public Notice: Filing a financing statement provides public notice of the security interest, letting other parties know your claim on the collateral. It helps establish your priority rights and prevents others from acquiring an interest in the same collateral without knowledge of your security interest.
- Priority and Subordination: Article 9 establishes rules for determining priority among competing security interests. The general rule is “first to file” or “first to perfect” obtains priority, but exceptions exist based on certain factors, such as purchase-money security interests.
- Default and Remedies: In the event of default by the debtor, Article 9 outlines the remedies available to the secured party. These may include repossession and sale of the collateral, the right to seek deficiency judgments, or the ability to enforce rights through judicial proceedings.
For business owners engaged in secured transactions, it is imperative to have a solid understanding of and adhere to the requirements outlined in Article 9. Failure to follow the proper procedures can have serious consequences, including the loss of priority rights, leaving your assets vulnerable to competing claims, and facing challenges in enforcing your security interest. By ensuring compliance with Article 9, you can protect your interests, maintain control over your assets, and mitigate the risks associated with secured transactions.
To navigate the intricacies of Article 9 effectively, consulting with an experienced attorney specializing in commercial law is highly recommended. They can guide you through the process, help you create solid security agreements, and ensure your compliance with the UCC requirements.
Don’t have a business attorney? Get in touch with our team by emailing Info@harbourbusinesslaw.com.
This Blog was written by Founding Attorney, Katelyn Dougherty.
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