Right on the Money

By Turner, Steven | Independent Banker, March 2001 | Go to article overview

Right on the Money


Turner, Steven, Independent Banker


Uniform Commercial Code revisions affect how banks document and issue loans

Article 9 of the Uniform Commercial Code, which governs the creation of security interests in personal property and delineates the rules and procedures for a bank to obtain personal property collateral for a loan, has been substantially revised. Those revisions, adopted by roughly 29 states as of January, will impact the manner and method in which banks document and process loans secured by personal property, making life simpler for secured lenders in commercial transactions.

The UCC, which establishes a series of legal rules for various types of commercial and consumer transactions, has eleven substantial articles, of which Article 9, is just one. This article highlights only certain areas of Revised Article 9 that may impact typical secured lending practices. It focuses on Article 9 and its concepts of "attachment" (when security interests are effective between creditors and debtors as stated in their agreements) and "perfection" (when creditors establish their priority relative to other creditors) in regards to collateral.

After more than five years in the making by national standard-setting organizations, the revisions are set to take effect July 1, 2001, subject to adoption by individual states. This date was intended to give all states ample opportunity to enact the new statute to avoid complications over such matters as where litigation regarding collateral is heard. This is important because the legality of such secured interests will be affected by which version of Article 9 is in effect, depending on whether the state has enacted the newest version or relies on the current article.

Foremost, the revisions expand the types of collateral in which a debtor can grant a security interest, allowing deposit accounts, for example (excluding consumer deposit accounts), to now be included. Revised Article 9 also permits electronic transactions, whereas before a security agreement had to be signed by the "debtor."

Perfection of security interests under Revised Article 9 will generally be accomplished either by filing a UCC-1 financing statement, by "control" or both.

Perfection by Control

If the collateral consists of investment property (commodity accounts, securities, mutual funds) or deposit accounts, you should perfect your security interest by control. Control normally means the use of a three-party agreement. For example, if the collateral is investment property, the control agreement would normally be an agreement between the bank, the debtor and the securities or commodities broker.

The control agreement should provide for the granting of the security interest and should further provide that upon notice from the bank, the broker will liquidate the positions and forward all net funds to the bank.

A security interest in investment property can be perfected by filing. However, if Bank A perfects only by filing and Bank B perfects by control, then Bank B has priority. Accordingly, both filing and control should perfect these interests.

Control is also required to perfect a security interest in deposit accounts. If the deposit account is with the bank that has the security interest, then no control agreement is required, as control-perfection is automatic. However, if the account is at Bank A, then Bank B would need a control agreement.

In such a scenario, Bank B,which does not hold the account would need to enter into an agreement that essentially states that upon notice, Bank A would forward the funds in the deposit account to Bank B without obtaining further consent from the debtor. Bank A's right of set-off, however, retains priority over the security interest of Bank B.

Generally, the priority between competing secured creditors under Revised Article 9 is still based upon a "first to file rule." Revised Article 9 does provide, however, certain purchase money exceptions. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Right on the Money
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.