Describing the Collateral Subject to a "blanket" Lien, or How to Knit a Big, Soft, Warm Blanket

• Publication year: 2017
• Author: Dean T. Kirby, Jr.

Describing the Collateral Subject to a "Blanket" Lien, or How to Knit a Big, Soft, Warm Blanket

Dean T. Kirby, Jr.

Dean Kirby is a member of firm of Kirby & McGuinn, A P.C., a seven-lawyer boutique firm with offices in San Diego. He represents lenders, creditors, and fiduciaries in bankruptcy, foreclosure, and commercial collection matters. Mr. Kirby is a member of both the Commercial Transactions Committee and the Business Litigation Committee, and editorial contributions were made by members of both committees.

Commercial lenders, more often than not, require a first priority "blanket security interest," which they expect will encumber all personal property assets of the borrower. Why is it not surprising that a lawyer must say . . . "It's not that simple?"

To begin with, how should the collateral be described in a "blanket" security agreement? Uniform Commercial Code (UCC) Article 9, section 9-102 defines a list of generic types of collateral that, if all of them are used in a collateral description, will create a lien on almost all of the debtor's personal property that is subject to Article 9. These are the generic types:

1. "Goods" includes most tangible personal property, including four subcategories also defined in the UCC: (i) "Equipment" (ii) "Inventory" (iii) "Farm Products" and (iv) "Consumer Goods";
2. "Investment Property" includes certificated and un-certificated securities and securities accounts and related rights;
3. "Instruments" includes, e.g., promissory notes;
4. "Chattel Paper" means, among other things, contracts that provide for both a security interest in specific goods and the payment of money, such as consumer installment purchase agreements;
5. "Documents" includes documents of title, such as bills of lading and warehouse receipts;
6. "Letter of Credit Rights";
7. "Deposit Accounts";
8. "Accounts" are rights to payment for goods sold or services rendered, in other words, receivables;
9. "Health Care Insurance Receivables"; and
10. "General Intangibles" include all other intangible personal property. This includes intellectual property, and miscellaneous rights to payments: and
11. "Money" (i.e., currency).¹

UCC section 9-108(b)(2) provides that a collateral description which simply refers to a type defined in the UCC "reasonably identifies" collateral of that type without the need to be any more specific. Thus a collateral description that lists the above "11+3" categories, using the exact, above-quoted words, will be held to reasonably identify all collateral of those types without the need to be any more specific.

That sounds simple enough, but why not make things even simpler by stating in the security agreement and...