UCC Article 9 (Legal Overview: All You Need To Know)

What is UCC Article 9?

What is the Uniform Commercial Code Article 9 used for?

What are the essential elements you should know!

Keep reading as we have gathered exactly the information that you need!

Let’s dig into our Uniform Commercial Code knowledge!

Are you ready?

Let’s get started!

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.

Secured Transactions

Secured transaction” is an important legal concept as it allows creditors or lenders to take a security interest in collateral when lending money to a borrower.

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:

  • Inventory
  • Fixtures
  • Equipment
  • Vehicles
  • Stocks
  • Bonds
  • Personal assets

Attachment 

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 

Perfection

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.

Priority 

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.

Takeaways 

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

  • Article 9 of the UCC governs secured transactions in personal property.
  • The main objective of UCC Article 9 is for a lender to become a “secured creditor”
  • Article 9 regulates security interests in personal property offered as collateral by a debtor to secure outstanding debt
  • Creditors having the ability to secure an interest in movable property, intangible assets, or fixtures, are encouraged to issue loans and lend money to those who need it
  • In case of default on a loan or legal obligations by the debtor, the creditor has the comfort to know that it can be compensated by seizing, foreclosing, or selling the debtor’s asset

You May Also Like Related to Article 9 Secured Transactions

Article 9 sale 
Foreclosure
Judicial foreclosure 
Line of credit
Nonpossessory security interest 
Reasonable notice 
Repossession of collateral 
Secured creditor 
Secured party 
Secured transaction
Author

Related to Article 9 UCC

Blanket lien
Continuation statement
UCC 1-103
UCC 1-303
UCC 2-201
UCC Article 2
UCC lien 
UCC search
UCC-1
Uniform Commercial Code
Author

LEAVE A REPLY

Please enter your comment!
Please enter your name here