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The Uniform Commercial Code is a set of laws that help to unite regulations for commercial transactions across state lines. There are multiple laws and articles within the UCC, and one is UCC 9-203. What receives coverage in this section? What will you learn about the Uniform Commercial Code through this portion of the vital document?
Uniform Commercial Code 9-203 deals with Attachment and Enforceability of Security Interest; Proceeds; Supporting Obligations; and Formal Requisites. It speaks on when a security interest becomes enforceable, how it’s enforceable, and other valuable information for the parties involved.
If you’re interested in learning more about UCC 9-203, you’re in the right place. Whether you’re in a position where you need to understand more about the law or are a curious individual at heart, it’s always an excellent idea to familiarize yourself with the Uniform Commercial Code. Read on to learn more about UCC 9-203 and other valuable information.
What Is UCC 9-203?
UCC 9-203 is one of the laws at the end of the Uniform Commercial Code. Like the other laws, it covers critical information surrounding commercial transactions.
Here is the official definition of UCC 9-203 according to the Cornell Law School Legal Information Institute:
A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.
Except as otherwise provided in subsections (c) through (i), a security interest is enforceable against the debtor and third parties with respect to the collateral only if :
(1) value has been given;
(2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and
(3) one of the following conditions is met:
(A) the debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned;
(B) the collateral is not a certificated security and is in the possession of the secured party under Section 9-313 pursuant to the debtor's security agreement;
(C) the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under Section 8-301 pursuant to the debtor's security agreement; or
(D) the collateral is deposit accounts, electronic chattel paper, investment property, or letter-of-credit rights, and the secured party has control under Section 9-104, 9-105, 9-106, or 9-107 pursuant to the debtor's security agreement.
(c) .Other UCC provisions..
Subsection (b) is subject to Section 4-210 on the security interest of a collecting bank, Section 5-118 on the security interest of a letter-of-credit issuer or nominated person, Section 9-110 on a security interest arising under Article 2 or 2A, and Section 9-206 on security interests in investment property.
(d) .When person becomes bound by another person's security agreement..
A person becomes bound as debtor by a security agreement entered into by another person if, by operation of law other than this article or by contract:
(1) the security agreement becomes effective to create a security interest in the person's property; or
(2) the person becomes generally obligated for the obligations of the other person, including the obligation secured under the security agreement, and acquires or succeeds to all or substantially all of the assets of the other person.
(e) .Effect of new debtor becoming bound..
If a new debtor becomes bound as debtor by a security agreement entered into by another person:
(1) the agreement satisfies subsection (b)(3) with respect to existing or after-acquired property of the new debtor to the extent the property is described in the agreement; and
(2) another agreement is not necessary to make a security interest in the property enforceable.
(f) .Proceeds and supporting obligations..
The attachment of a security interest in collateral gives the secured party the rights to proceeds provided by Section 9-315 and is also attachment of a security interest in a supporting obligation for the collateral.
(g) .Lien securing right to payment..
The attachment of a security interest in a right to payment or performance secured by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage, or other lien.
(h) .Security entitlement carried in securities account..
The attachment of a security interest in a securities account is also attachment of a security interest in the security entitlements carried in the securities account.
(i) .Commodity contracts carried in commodity account..
The attachment of a security interest in a commodity account is also attachment of a security interest in the commodity contracts carried in the commodity account.
UCC 9-203 Explained In Simple Terms
UCC 9-203 deals with “attachment” in commercial transactions. If a security interest wants to be enforceable, it’s required for it to attach to the collateral. UCC 9-203 makes this connection apparent.
In this section, UCC 9-203 places the requirements for attaching and enforcing various security interests under the Uniform Commercial Code.
The requirements include the following:
- Creditors must provide value
- The debtor must have the legal rights to the collateral
- A security interest or action conveying security interest must exist
It’s specific about what must occur for attachment and enforcement.
An enforceable security interest is of value to the lender in an agreement. However, it cannot function well until it meets these standards.
Why Was UCC 9-203 Added?
UCC 9-203 came to the Uniform Commercial Code for the sake of clarifying the attachment process of a security interest in any commercial agreement between two parties. It states the requirements necessary, making everything much easier for lenders and other participants to understand in various deals.
Like the other sections in the Uniform Commercial Code, UCC 9-203 plays a critical role in unifying everything across state lines. Attachment is necessary for commercial transactions to be enforceable, and it’s a must for them to work as practical collateral. It works in tandem with other sections in the UCC.
Why Is UCC 9-203 Important?
Uniform Commercial Code 9-203 is critical because it clarifies requirements for attaching and enforcing security interests under the UCC. This information is valuable for everyone involved in a commercial transaction, dealing with the case under the regulations of the Uniform Commercial Code.
For instance, a lender might receive equipment as collateral for a loan taken out by the debtor. If that’s the case, they must file a proper financing statement in a local public office and potentially take control of the collateral.
There are some critical steps involved in the process written in UCC 9-203. This section makes it abundantly clear for those involved in a commercial transaction.
What Is Required For Enforceable Security Interest?
Under the Uniform Commercial Code, there are requirements to create an enforceable security interest. These are critical to consider before taking any further steps in a commercial transaction.
There are three requirements for enforceable security interest under the UCC. These statements include the following items:
- The value must be offered in exchange for collateral
- The debtor must obtain the rights to the collateral or must have a way to hand over the rights to the involved secured party
- The creditor must have the collateral in hand or the debtor must have an authenticated security agreement
These are necessary for an enforceable security interest.
An enforceable security interest is a critical part of the UCC. UCC 9-203 dives deeper into this essential portion of the Uniform Commercial Code.
What Article Comes After UCC 9-203?
UCC 9-203 is just one section in UCC Article 9. One law comes after UCC 9-203 - UCC 9-204.
According to Cornell Law School Legal Information Institute, here is the official definition of UCC 9-204:
(a) .After-acquired collateral..
Except as otherwise provided in subsection (b), a security agreement may create or provide for a security interest in after-acquired collateral.
(b) .When after-acquired property clause not effective..
A security interest does not attach under a term constituting an after-acquired property clause to:
(1) consumer goods, other than an accession when given as additional security, unless the debtor acquires rights in them within 10 days after the secured party gives value; or
(2) a commercial tort claim.
(c) .Future advances and other value..
A security agreement may provide that collateral secures, or that accounts, chattel paper, payment intangibles, or promissory notes are sold in connection with, future advances or other value, whether or not the advances or value are given pursuant to commitment.
This section of the Uniform Commercial Code dives into After-Acquired Property and Future Advances. It deals with after-acquired collateral, when the after-acquired clause isn’t practical, and touring on future advances and other involved values.
UCC 9-204 comes after UCC 9-203 because they work together to clarify information surrounding collateral. They are valuable teammates in this section of Article 9 of the Uniform Commercial Code.
Reference Legal Explanations
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"What Is UCC 9-203?". Legal Explanations. Accessed on December 10, 2023. https://legal-explanations.com/blog/what-is-ucc-9-203/.
"What Is UCC 9-203?". Legal Explanations, https://legal-explanations.com/blog/what-is-ucc-9-203/. Accessed 10 December, 2023
What Is UCC 9-203?. Legal Explanations. Retrieved from https://legal-explanations.com/blog/what-is-ucc-9-203/.