The Amended Uniform Commercial Code in Colorado
| Publication year | 1978 |
| Pages | 336 |
| Citation | Vol. 7 No. 3 Pg. 336 |
1978, March, Pg. 336. The Amended Uniform Commercial Code in Colorado
Upon recommendation by a special Colorado Bar Association subcommittee, the legislature enacted extensive revisions to the Colorado version of the Uniform Commercial Code (UCC) which became effective January 1, 1978. Several of the amendments simply clarify existing code rules and expand the statute to accommodate judicial interpretation. In addition, certain changes recommended in 1966 by the Uniform Code Commissioners which have never been considered in Colorado were reviewed and included. This article considers major substantive changes in Articles 6 and 9.
The 1978 Revisions include extensive revisions to Article 9 of the Code, most of which have been patterned after the revisions promulgated by the Uniform Commissioners in the 1972 version of the official text of the UCC, and include changes in the rules pertaining to classification of collateral, attachment and enforceability of security interests, priorities of security interests with respect to future advances, proceeds, and competing security interests with other security interests and judicial liens. Extensive modifications have been made in the rules pertaining to fixtures, multistate transactions, and filing and continuation provisions. Minor modifications have been included for default, treatment of consignments under Article 9, and choice of law rules.
Section 4-9-104 was amended to clarify the exclusion from Article 9 of security interests created by governmental debtors(fn1) and landlord's liens.(fn2) The elimination of landlord's liens has consistently been part of the official text, but the legislature did not include this rule when the Code was originally adopted in Colorado. It is rumored that the reason for the exclusion was to avoid an implication that Colorado statutes create a landlord's lien in all personal property in all leased premises, which, although not covered under Article 9, arose by operation of law under some other statutory or judicial rule. Since Colorado statutes do create a landlord's lien for certain transactions,(fn3) it was believed appropriate to clarify the exclusion of such a lien from the operation of this article. This addition was not intended to extend or create new
landlords' rights, but rather to specify their exclusion from Article 9.
In addition, certain transactions which have always been excluded from Article 9, such as claims under insurance policies,(fn4) transfers of interests in deposit accounts(fn5) and rights represented by a judgment(fn6) have been modified to indicate that these items may be subject to Article 9 if the insurance or the deposit account arises as proceeds of collateral(fn7) or the judgment is taken on a right to payment which was collateral.(fn8)
The former category of collateral entitled "contract rights" has been eliminated throughout Article 9.(fn9) A contract right was considered to be an "account" before the right to payment became unconditional by performance by the creditor. In all respects, however, "accounts" and "contract rights" were treated the same except under § 4-9-318(2) on the right of original parties to modify and assign contracts.(fn10)
The use of the term "contract rights" has caused problems in interpretation of proceeds where a contract right became an "account," since a security interest in the pre-existing contract right could create a right in an account before it came into existence.(fn11) Further, the fine distinctions between "general intangibles," "contract rights," and "accounts," created traps for the unwary in the description required in security agreements and financing statements.(fn12) Accordingly, "account" now includes any right to payment for goods sold or leased or services rendered which is not evidenced by an instrument or chattel paper whether or not it has been earned by performance. What would previously have been described in a security agreement or financing statement as a "contract right" should now be described as an "account."
Consignments have always been considered to be in the nature of a security transaction, but have been previously treated only under Article 2. While filing under Article 9 has always been one of the methods of protecting a true consignment, the priority status of the consignor in the consigned goods was uncertain. Consequently, a new § 4-9-114 has been added to give the consignor priority if proper notice is given to prior inventory secured parties of the debtor, in the same manner as is required for other secured parties competing with inventory security interests.(fn13)
Minerals, including oil and gas, sold at wellhead or minehead have now been specifically covered in the definition of goods,(fn14) in the determination of the law governing perfection(fn15) and in the definitions of persons in the business of selling goods of the kind for determination of buyers in the ordinary course of business.(fn16)
Under the original Colorado version of the Code, and in the 1962 official text, the security agreement, its attachment and its enforceability, were separated rules, not specifically related to one another. It was possible, for example, to create the anomalous situation where a security interest could have attached and have been perfected, and yet be unenforceable against the debtor or third parties for lack of a written security agreement.(fn17) Section 4-9-203(1) has been revised to include the requirements of attachment---value, rights in the collateral, and agreement (evidenced by a writing or by possession of the secured party)---as preconditions to enforceability of the security interest. The security interest, therefore, attaches and becomes enforceable when all of the events specified in that subsection have occurred.
Colorado has operated under the nonuniform
uniform rule that a security interest in consumer goods (other than a purchase money security interest or a security interest in property subject to certificate of title statutes)(fn18) owned by a married person is not enforceable unless the security agreement and financing statement are signed by the husband and the wife if they are residing together. This rule has been retained.(fn19) However, two important changes have been made in the language. The security interest must be taken in consumer goods owned by a married person and used primarily for family and household purposes. The definition of "consumer goods" includes goods owned or used primarily for personal, family or household purposes.(fn20) By omitting the word "personal" in the special language of § 4-9-203(2), the "personal goods" included in the definition of consumer goods have been excluded from the joint signature rule, and a married person may grant a security interest in his or her personal goods without requiring the signature of the other spouse. Also, having excluded goods covered by a certificate of title and purchase money interests, this section should be read to include only furniture or household appliances already owned by the debtors and used primarily by the family or for household purposes.
In addition, the former language required the signatures of both parties if they were residing together "at the time of execution." The new language requires that they be residing together "at the time the security interest is created."
"Creation" of a security interest should mean the point at which the security interest attaches to the collateral---that is, when the debtor has rights in the collateral, value has been given, and the secured party either takes possession or obtains a written agreement. Thus, if the parties are not residing together when the last of those specified events occurs, it should not matter whether the security agreement has been signed by both spouses.
The former version of § 4-9-204(2) provided certain cases when the debtor could acquire rights in the collateral for purposes of defining attachment.(fn21) These events have been eliminated from the official text and the Colorado version, and the question of the time at
which the debtor acquires rights in the collateral for crops, livestock, fish, minerals, timber, and accounts is left for determination by a court.(fn22)
A security agreement may provide that all or any of its obligations are to be secured by after-acquired collateral.(fn23) Certain limitations on the after-acquired provisions have traditionally existed. For example, no interest may attach under an after acquired property clause to consumer goods (other than accessions) unless the debtor acquires rights in the collateral within ten days after the secured party gives value.(fn24) Similarly, a security interest in crops formerly could not attach under an after-acquired property clause under § 4-9-204(4) if the crops became crops more than one year after the security agreement.
The amendments eliminate this latter provision, the purpose of which was to protect a needy farmer who might be inclined to encumber his crops for many years in the future. Although the former version of the section prevented the security agreement from attaching...
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