3JM Company Inc.

Published Articles by David Balovich

Published in: Creditworthy News
Date: 7/13/98

We have received several inquiries concerning UCC Article 9 ( secured
transactions ) and how to comply with the article and become a secured

This cannot be accomplished in one column. We will therefore discuss the
different aspects of becoming a secured creditor over the next few

Today we will address some of the commonly asked questions concerning
secured transactions.

What can be pledged as security? Under the UCC security can be
"accounts", "general intangibles", and "goods". "Goods" is broken down
into "consumer goods", "equipment", "farm products" and "inventory".

What are "general intangibles"? This is collateral not covered under
"accounts" or "goods". An example would be fixtures in a business which
generally or not considered to be inventory or equipment but may be
considered to be consumer goods. "Consumer goods" are goods purchased
primarily for personal, family or household use. In a business there may
be art work, furniture, floor coverings, etc. These would be considered
"general intangibles".

What if the collateral is not owned by the debtor? In such a case the
owner of the collateral is not liable for any portion of the debt and is
entitled to receive any surplus from the sale of the collateral. (9-112)

Is a security interest the same as a bulk transfer? The creation of a
security interest does not constitute a bulk transfer. ( see UCC section

Is the filing of a security agreement always required in order to be a
secured creditor? No, in some cases, that we will address, the filing of
the document is not required. However, it is recommended that the document
be filed so that other creditors are notified that a security interest has
been obtained.

My company provides service not a product. How can we be a secured
creditor when we have no goods to use as collateral? This is one of the
most frequently asked questions. The fact that you do not provide a
product does not prevent you from taking a security interest in goods that
have been provided by others. This is what the banks do on a regular
basis. U.S. currency by definition is security, the banks therefore take
collateral obtained from others to use as security for their loans. Any
creditor may do the same.

In our next column we will discuss the difference between a security
agreement and a financing statement.

I wish you well.

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