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The Uniform Commercial Code is a set of laws designed to govern commercial transactions in the United States. It is built to protect both buyers and sellers and has been developed over several years. Section 9-108 is one small part of the UCC.
UCC 9-108 covers the rights of a seller when describing collateral they are accepting in exchange for a monetary loan. In short, the item must adequately be described in name, with a brief description.
But of course, law is often more complicated than it seems at first glance. Read on to learn all about UCC 9-108 and what it means in terms of a commercial transaction.
What is UCC 9-108?
The Uniform Commercial Code (UCC) Article 9 governs secured transactions in the United States. Specifically, UCC 9-108 deals with the rights and duties of a secured party when describing a debtor’s description of their collateral when they aren’t in the same location as the entity they are currently in debt to.
What Does UCC 9-108 Mean?
In the context of UCC 9-108, when a debtor's location changes, it can affect the enforceability of a security interest that a secured party holds. The UCC provides rules for determining the proper jurisdiction under which to file a financing statement when the debtor relocates.
Here's a simplified breakdown of UCC 9-108:
1. Sufficiency of Description
If a debtor needs to provide information about collateral (such as a house or vehicle) but isn’t in the same location as the entity loaning the credit, a description of the property being used as collateral will be considered sufficient.
The description, though, needs to accurately describe the property being placed as collateral. It cannot just be referred to as collateral in legal documents. Like most laws, however, there are several exceptions to this law, as expected.
2. What Must Be Contained in the Description
When the description of the collateral is provided, it must contain information about the item. The information required includes the collateral category, type, and quantity. It also must be specific in nature, enough for someone reading the document who is uninvolved in the case to be able to know what item is being used as collateral.
3. What the Description Cannot Be
It is not allowed for a description to be simply “all the debtor’s assets” or something along these lines. The description must accurately describe each aspect of the assets and cannot refer to them as one.
There are a few times, however, that you can mention something as “all” of the debtor’s assets are a single asset, such as an investment property, which they have multiple of, it is possible to put “all the debtor’s investment properties” or something similar.
It's important to note that the exact provisions and implications of UCC 9-108 can be complex and can vary based on the specific circumstances of the transaction and the applicable state law. Therefore, if you're dealing with a situation involving UCC Article 9 and describing collateralized assets, it's recommended to consult legal counsel or an expert in secured transactions to ensure you understand the implications and requirements accurately.
For the most up-to-date and accurate information, please refer to the latest version of the Uniform Commercial Code and consult legal professionals familiar with the current state of the law.
Why Do We Have UCC 9-108?
It might be a little weird to consider we had to, as a society, put into writing how a collateralized asset must be described in legal documents. But it is necessary.
Think about it: if you were writing a legal contract for a client, and you knew that “all assets” meant house and car, that might make sense to you. But, if something happened to you and someone else had to take over your contracts, they might think that “all assets” means house, car, and bank account.
Having the UCC 9-108 uniformizes the way debtor contracts are written so that if the contract is acquired by anyone else, they can understand the contract in the exact same way you are.
It also prevents someone from claiming they meant to use one asset as collateral, and their lawyer wrote down something else.
Basically, it streamlines the process of putting collateral on the line, keeping both debtors and credit lenders safe from miscommunication accusations down the line.
Overall, UCC 9-108 is an important part of the commercial code that helps protect both sides of a financial dealing. If you or someone you know needs help navigating the sections of the UCC, don’t be afraid to ask for help! It’s better to be safe than sorry!
Reference Legal Explanations
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"What is UCC 9-108". Legal Explanations. Accessed on October 3, 2023. https://legal-explanations.com/blog/what-is-ucc-9-108/.
"What is UCC 9-108". Legal Explanations, https://legal-explanations.com/blog/what-is-ucc-9-108/. Accessed 3 October, 2023
What is UCC 9-108. Legal Explanations. Retrieved from https://legal-explanations.com/blog/what-is-ucc-9-108/.