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Published Articles by David Balovich

Title: The Revised UCC: Security Agreements
Published in: Creditworthy News
Date: 7/3/01

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 symbol.

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.

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