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(1) Subject to the provisions of Section 4-208 on the security interest of a collecting bank, Section 8-321 on security interests in securities and Section 9-113 on a security interest arising under the Article on Sales, a security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless:
(2) A security interest attaches when it becomes enforceable against the debtor with respect to the collateral. Attachment occurs as soon as all of the events specified in subsection (1) have taken place unless explicit agreement postpones the time of attaching.
(3) Unless otherwise agreed a security agreement gives the secured party the rights to proceeds provided by Section 9-306.
(4) A transaction, although subject to this Article, is also subject to _______*, and in the case of conflict between the provisions of this Article and any such statute, the provisions of such statute control. Failure to comply with any applicable statute has only the effect which is specified therein.
Here is the 200 + word document:
Lenders may accept intangibles as collateral for loans made to commercial borrowers. The rights and remedies under Article 9 of the Uniform Commercial Code (“UCC”) apply where accounts receivable are sold to the lender. Article 9 applies even if the interest acquired by the secured party is in future receivables. The UCC defines an “Account” as including “… a right to the payment of a monetary obligation, whether or not earned by performance”, while the definition of “Collateral” includes “accounts, chattel paper, payment intangibles and promissory notes which have been sold …”. In this case, the accounts receivables is collateral and the security interest of the Bank vest upon the signing of the Security Agreement by an Officer of the Debtor, MGI, whether the financial are 'filed' or not. The issues would be if the debtor used the receivables as collateral in another transaction and that creditor's status as a 'good faith' creditor would put the Bank's position in peril.
After default, a secured party has the rights provided both in Article 9 and those provided in the agreement between the parties. The secured party may utilize any available judicial procedure to reduce its claim to judgment or enforce its security interest.
Remedies available to the secured credit under Article 9 after default include taking any identifiable proceeds in the collateral. “Proceeds” may include: loss of the collateral; nonconformity of the collateral; interference with the use of the collateral; defects in the collateral; infringement of rights in the collateral; damage to the collateral.
Where the underlying transaction is a sale of accounts or payment intangibles, and following the secured party acquiring the proceeds of the collateral, the debtor is not entitled to any surplus, nor is the debtor liable for any deficiency.
The interplay of the various sections of the UCC in Article 9 can make the determination of potential rights and remedies complex when applied to the sale of accounts receivable. A thorough understanding of the respective remedies under both the agreement of the parties and the UCC are essential where the collateral is accounts receivable, particularly in light of the UCC’s prohibition against recovering a deficiency balance where the secured party liquidates its claim for proceeds.
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