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Lawdoctor, Attorney
Category: Business Law
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Experience:  I have handled numerous business law cases during my career
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You are the chief executive officer of Money Games Inc.(MGI),

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You are the chief executive officer of Money Games Inc.(MGI), which has begun to market Borrow & Spend, a video game set in the world of finance. To buy ads, MGI borrows $50,000 from First Savings Bank. On MGI's behalf, you sign a note for the loan and offer its accounts receivable as collateral. You sign a security agreement that describes the collateral. The bank does not file a financing statement. Has the banks security interest attached? If so, when? 200 words
Submitted: 5 years ago.
Category: Business Law
Expert:  Josie-Mod replied 5 years ago.

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Customer: replied 5 years ago.
Yes, I am still waiting for an answer. Could this question possible be referred to one of the legal experts that assisted me before.
Expert:  Josie-Mod replied 5 years ago.
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Expert:  Lawdoctor replied 5 years ago.
You have not stated a specific state, so I will go with using the UCC as written by the American Law Institute. Here is the specific portion of the UCC that applies:

§ 9-203. Attachment and Enforceability of Security Interest; Proceeds; Formal Requisites.

(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:

  • (a) the collateral is in the possession of the secured party pursuant to agreement, or the debtor has signed a security agreement which contains a description of the collateral and in addition, when the security interest covers crops growing or to be grown or timber to be cut, a description of the land concerned;
  • (b) value has been given; and
  • (c) the debtor has rights in the collateral.

(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.

  • Note: At * in subsection (4) insert reference to any local statute regulating small loans, retail installment sales and the like.
  • The foregoing subsection (4) is designed to make it clear that certain transactions, although subject to this Article, must also comply with other applicable legislation.
  • This Article is designed to regulate all the "security" aspects of transactions within its scope. There is, however, much regulatory legislation, particularly in the consumer field, which supplements this Article and should not be repealed by its enactment. Examples are small loan acts, retail installment selling acts and the like. Such acts may provide for licensing and rate regulation and may prescribe particular forms of contract. Such provisions should remain in force despite the enactment of this Article. On the other hand if a retail installment selling act contains provisions on filing, rights on default, etc., such provisions should be repealed as inconsistent with this Article except that inconsistent provisions as to deficiencies, penalties, etc., in the Uniform Consumer Credit Code and other recent related legislation should remain because those statutes were drafted after the substantial enactment of the Article and with the intention of modifying certain provisions of this Article as to consumer credit.



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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Lawdoctor, Attorney
Category: Business Law
Satisfied Customers: 1400
Experience: I have handled numerous business law cases during my career
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