Recovery of Property, Under UCC Article 9

Vendors often have long-term relationships with the buyers of their goods. In these relationships, significant credit is often given to the buyers. When these buyers stop paying their bills, many vendors have a difficult time recovering from them, and they look for other ways to protect themselves without litigation or becoming a part of a bankruptcy proceeding.

Under the Uniform Commercial Code (or “UCC”), sellers have strong protections available to them. Sellers can create a security interest in their goods, covered by the UCC Article 9. This interest can allow them to recover the goods and avoid the necessary litigation or the bankruptcy process.

Filing the security agreement under UCC Article 9 has three requirements:
1.    The secured party must give value;
2.    The debtor must have rights in the collateral; and
3.    The debtor has agreed to the security agreement.

In the commercial context, this means that the creditor needs to have a signed agreement that says the debt is secured by the good delivered. Then the seller must file a financial statement, called a UCC-1 form, with the appropriate offices in the state where the debtor is located.

Once a perfected interest has been created, a secured party is able to notify the debtor that they intend to take recovery actions under UCC 9-607. Then, a secured party is able to take commercially reasonable steps to recover their goods and may also seek expenses for collection, including attorney’s fees.

Getting a security interest in goods is an effective way to simplify the collection process. It is recommended that any seller of goods includes language under UCC Article 9, to protect themselves from defaulting buyers.

To learn more about the UCC and protections it affords a seller of goods, please call and speak with a Wagner, Falconer & Judd attorney.

Attorney Nicholas D. Hartley