Under the revised Article Nine the minimum requirements
for the security agreement are similar to those under current law.
The most notable change is that the security
agreement is not required to be in writing nor is a signature
required. The security agreement is required to be kept as a
“record” which can be in writing or oral message contained in an
audio tape or digital voice messaging system. The only requirement is
that it be “retrievable in perceivable form”.
The security agreement must create or provide for
a security interest and it must provide a description of the
collateral. A general description, “all assets now in debtor’s
possession or hereafter acquired”, is not sufficient description for
the purposes of a security agreement, although it is sufficient for
the financing statement. It is recommended that you visit with your
legal counsel to determine what, if any, changes are required to your
present security agreement. There is nothing in the revised Code that
says you may not continue to use your present security agreement.
The debtor’s signature is no longer a
requirement for the security agreement and financing statement. The
signature requirement has been replaced with a requirement that the
debtor “authenticate” the record of the agreement. The term
“authenticate” includes all of the currently permissible methods
of signing a document, either a signature or the execution of a
The text and comment does not define
“authentication” beyond digital signatures. So even though the
security agreement can be created by voice and stored in an audio
record there is no guidance provided in the Code to determine whether
a signature can be established by voice as well.
It is apparent that the changes made to the
revised Article 9 were adopted with the notion that business is moving
quickly into the realm of paperless transactions. That may or may not
be the case but one thing is clear, the courts are not moving as
quickly as business and it is the courts who will eventually decide
the issues that the revised Code will create.
As you will see in the next column, the
differences between what is required in the security agreement versus
the requirements for the financing statement is not only complex but
in some cases contradictory. Again, it is highly recommended that you
visit with your attorney or an attorney who specializes in Creditor
Law and discuss what actions you should take under the revised Code.
I wish you well.