What is UCC Article 9?
What is the Uniform Commercial Code Article 9 used for?
What are the essential elements you should know!
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UCC Article 9 Overview
UCC stands for the “Uniform Commercial Code” representing a set of rules applicable to the sale of goods by merchants.
The UCC is broken down into nine articles outlined as follows:
- Article 1: General Provisions
- Article 2: Sales
- Article 2A: Leases
- Article 3: Negotiable Instruments
- Article 4: Bank Deposits and Collections
- Article 4A: Funds Transfer
- Article 5: Letters of Credit
- Article 6: Bulk Sales
- Article 7: Documents of Title
- Article 8: Investment Securities
- Article 9: Secured Transactions
Article 9 UCC is then broken down into seven parts:
- Part 1: General Provisions
- Part 2: Effectiveness of Security Agreement; Attachment of Security Interest; Rights of Parties to Security Agreement
- Part 3: Perfection and Priority
- Part 4: Rights of Third Parties
- Part 5: Filing
- Part 6: Default
- Part 7: Transition
Now that we’ve looked at the UCC Article 9 outline, let’s look at what is the purpose and objective of this article.
What Is Article 9 of UCC
Article 9 of the Uniform Commercial Code governs the “secured transactions”.
In other words, UCC Article 9 deals with a creditor’s security interest over a borrower’s property given as collateral to secure debt.
Here is a quick UCC Article 9 summary of what it governs:
- Security interests over movable or intangible property and fixtures
- Creation of a security interest
- The legal rights of parties
- Perfection of security interest
- Security priority
- Different types of possessory liens
- Legal right of ownership
In essence, UCC Code Article 9 is an article under the Uniform Commercial Code dealing with the creation and enforcement of debt security, it provides for the procedures creditors and borrowers must follow, includes collateralized loans and bonds, and allows for the attachment of a security interest to debt.
When the law allows creditors to register legal rights on a borrower’s assets in case of default, they will be better encouraged to lend money to those in need of capital.
Ultimately, the availability of capital to small businesses at lower interest rates allow the economy to flourish.
In the United States, all fifty states have adopted Article 9 of the Uniform Commercial Code governing secured transactions allowing the creation, registration, filing, and enforcement of security interests in personal property.
UCC Article 9 Secured Transactions cover movable property, intangible property, and fixtures.
It does not cover real property.
Collateral property can include:
- Personal assets
The notion of attachment is quite important under Article 9 UCC.
Attachment is the “creation” of the security interest.
In other words, there is attachment when there is a security interest effectively created by the creditor over the debtor’s property.
The most common form of attachment is through a written agreement entered into between the lender and the borrower (creditor or debtor).
Once the security interest is “attached”, it becomes enforceable.
You need three elements for the attachment to effectively take place:
- The debtor must have the rights in the collateral (or have the legal right to provide the convey the property rights)
- There must be a given value
- An authenticated security agreement describing the collateral
The second notion important under Article 9 Uniform Commercial Code is the notion of “perfection”.
You have “perfection” when a creditor is legally given priority over other creditors on the debtor’s property.
For a credit to perfect the security interest, a UCC-1 Finance Statement must be filed granting the creditor a priority rank on the property.
Once a creditor’s security is perfected on a property (or lien is registered), the creditor will have priority over others in seizing, foreclosing, or legally exercising rights over that property.
The first creditor perfecting the security interest will have first ranking rights to satisfy any unpaid debt by taking over the collateral property.
The second-ranking creditor can only access any residual value left over once the first-ranking creditor was fully satisfied.
The perfection of the security interest must be achieved by complying with the statutory procedures established by each state.
What should you understand from Article 9 of the UCC?
Let’s look at a summary of our findings to better understand what is UCC Article 9.
Article 9 UCC is divided into the following parts:
- Part 1: the general provisions providing for definitions and general concepts
- Part 2: providing for the rules relating to the attachment of security interests to property along with parties’ rights and obligations
- Part 3: the rules relating to a creditor perfecting the security interest and the priority it achieves over the collateral property
- Part 4: deals with third party rights
- Part 5: deals with the filing of a security interest, what filings need to include, and the Financing Statement
- Part 6: deals with a debtor’s default and the enforcement procedure to realize a security interest
- Part 7: deals with more legislative technicalities like the effective date and savings clause
Uniform Commercial Code Article 9
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