A Security Agreement May Be Filed as a Financing Statement

As mentioned earlier, a warranty contract cannot be considered valid if the collateral is not adequately described. In particular, descriptions of collateral should not be too broad or generic. A description that is too broad may include a general description or rely on the debtor`s “all assets”. Under the UCC, you can obtain security on almost any type of personal property. The most likely candidates are: Security is largely regulated by Article 9 of the Uniform Commercial Code (CDU). This legislation ensures uniformity throughout the credit industry and raises awareness among debtors and creditors of their rights. Over the years, section 9 has become one of the most important elements of the Code. It applies to all transactions that create a security right in personal property. A supplier of equipment may require continuous security for an outstanding line of credit. A supplier may require security upon opening the account or later as a condition for the continuation of the account or an increase in the credit limit.

This will most likely work if the customer is highly dependent on a supplier to continue their business. This should always be considered as a possibility, especially with a marginal customer. If you are faced with a customer that you would normally disqualify for credit reasons, you should consider security. This is an opportunity to increase sales that would otherwise be denied. The bankruptcy puts an end to the race for the courthouse. [2] All creditors are prohibited from applying for liens or otherwise improving their situation once an application for insolvency has been filed. Once an application has been filed, general unsecured creditors will never be able to secure the amount owed to them by judgment or otherwise. However, the secured creditor`s lien on the assets survives bankruptcy. A purchase money hedging interest works best for a seller of durable goods that the buyer will hold on to for a long period of time. The seller of heavy machinery is a good example.

A food supplier for a restaurant will not be as interested in a security on the purchase price, as the goods are quickly resold or lose value as they age. A building material supplier usually has the same problem. The wood delivered to a carpentry stable will soon be resold to the customer and integrated into the property. As a general rule, the builder will require the carpenter-subcontractor to transport the wood “free of privileges” and “free of any security”. The UCC acknowledges that the description by type is not sufficient for tortious commercial claims, commodity accounts, warranty claims or consumer transactions. In your security agreement, you want the right to contact the debtor`s customer to receive direct payment. The security agreement set out in the Annexes contains these and other protection conditions. Floating privileges can also appear in security agreements. This type of security right cannot be in the possession of the debtor at the time the security agreement is drawn up. A floating lien after the acquisition of real estate may include proceeds from the sale of the title or future advances. Purchase-money security rights may be collected if all the conditions set out in Articles 9.107 and 9.312 are met.

Allows the secured party to acquire a higher security right in certain assets, regardless of the existence of conflicting security rights. The priority of security rights in personal property is very similar to the priority of liens in real property. In general, the secured creditor that first “perfected” the security right has first priority. To complete this, the secured creditor must have a valid security agreement and, in most cases, file a valid financing statement. If the debtor becomes insolvent, the assets are not sufficient to pay all creditors. Other creditors will attack any security that is weak. As a result, the technical rules of perfection must be strictly followed. For this reason, you should be concerned about a previous “floating” or “general” privilege of a bank if you plan to take a security right from a debtor. When setting up the car loan, you also sign a “security contract”.

This security agreement gives the bank a “security right” in the “security” or “security” (the car). The security agreement gives the bank the right to bring an action against the securities (car) in the event of late payment. The bank can repossess the collateral and resell it to receive payment of the loan. If the sale of the guarantee is not sufficient to repay the loan, the bank still has the right to sue you for a possible default on the promissory note. Bankruptcy terminates any legal action against the debtor. Often, when many sellers start legally pushing a debtor, bankruptcy ensues. Each time you become “legal” against the debtor, you run the risk that bankruptcy will prevent you from obtaining security, or that all of the debtor`s assets have disappeared by the time the judgment is pronounced. Obtaining a hedging interest now avoids these two problems. As long as the debtor can successfully file for you without declaring bankruptcy 90 days after providing security, your security will survive bankruptcy, while other creditors may not be able to recover it. The communication itself merely states that a person may hold a security right in the specified securities. Further requests from the parties involved will be required to disclose the full state of affairs.

Article 9 (210) provides for a legal procedure under which the secured party may be required to disclose at the request of the debtor. In many cases, however, information can be provided without having to resort to the formalities in this section. Even if you are about to “become legal” through the customer, you should consider security. A customer may ask you not to file a mechanic lien or to file a lawsuit. You can agree to do so in exchange for other reasonable security. It`s worth doing, even if it means waiting longer for payment or granting extra credit. If you continue to legally push the customer, it will probably take months before you receive a verdict. Many other creditors will “drive you to the courthouse.” It is very interesting to offer the borrower incentives to provide security. Other creditors who receive judgment privileges over the months have less interest in the same property in which you now receive security. If a lender provides a buyer with the funds necessary to purchase goods, it may receive a “purchase price security”.

In the typical sale of heavy machinery, the excavator`s subcontractor who buys heavy equipment must borrow money for the purchase. .