South Carolina Lawyer
Vol. 13, No. 3, Pg. 16.
Understanding the new and improved UCC Article 9
16Understanding the "new and improved" UCC Article 9By Randy LowellThe Uniform Commercial Code Article 9 provides a structure for securing interests in personal property and fixtures (i.e., collateral) created through a contract. In an effort to update and improve the article, a drafting committee was formed in 1993. In 1998, the revised article was approved by the American Law institute, with subsequent amendments in 1999 and January 2000.
The era of Revised Article 9 (RA9) dawned on Soutlr Carolina and the vast majority of states on July 1, 2001. S.C. Code Ann. §§ 36-9-101 to 369-709. (By January 1, 2002, all states and the District of Columbia will follow RA9.) While following the same general approach of the former enactment of Article 9, substantive changes have been made, and pitfalls aboinid for counselors unaware of these changes. This article aims to highlight and explain some of the most significant changes, with the caveat that every individual situation is unique and will require a review of RA9.
18As a matter of reorganization, RA9 contains seven parts: Part 1, General Provisions (S.C. Code Ann. §§ 36-9101 to 36-9-110); Part 2, Effectiveness of Security Agreement (S.C. Code Ann. §§ 36-9-201 to 36-9-210); Part 3, Perfection and Priority (S.C. Code Ann. §§ 36-9-301 to 36-9-342); Part 4, Rights of Third Parties (S.C. Code Ann. §§ 36-9-401 to 36-9-409); Part 5, Filing (S.C. Code Ann. §§ 36-9-501 to 36-9-527); Part 6, Default (S.C. Code Ann. §§ 36-9-601 to 36-9-628); and Part 7, Transition (S.C. Code Ann. §§ 36-9701 to 36-9-709). The new UCC forms required to be filed in South Carolina can be obtained from the Secretary of State's office and its Web site. www.scsos.gov/forms.htm.
The scope of RA9 has increased by both expanding the definitions to include more and narrowing the exceptions to exclude less. The definition of accounts, for example, has been expanded to include all payment rights, including credit card receivables. The tort claims exclusion has likewise been narrowed to allow a secured interest in commercial tort claims. S.C. Code Ann. §§ 36-9102(a)(13), (d)(12). Another important development is that a secured party need no longer specify proceeds as collateral, as proceeds are automatically included and perfected under RA9.
The sale of a payment intangible or promissory note is now included within the scope of Article 9, and the buyer automatically perfects with the transaction, even without possession. S.C. Code Ann. §§ 36-9-109(a)(3); 36-9-309(4). While not required to perfect, possession is highly recommended because a subsequent purchaser who took possession would have priority. Loans fall under the purview of RA9 as well. Instead of having to parse what consignments are covered as required under old Article 9, the new rule is simple. All consignments are covered. The definition of chattel paper has also been refined in RA9 and is now subdivided into a new category of electronic chattel...