the provisions with regard to inventory,
especially with regard ro floor-plan lending, are basically unchanged, although RA9 does make some helpful clarifications with regard to cash proceeds of sales of inventory. D. After-Acquired Torts - However, an aner acquired property clause simply cannot apply to commercial torrs since they cannot
be adequately described until mey actually arise. (This type of collateral is too rare to warram an extended discussion, but think in terms of copyright infringemem.) E. Instruments - Promissory notes (and other instruments, which, definitionally, never includes credit card slips) can be assigned and a security imerest perfected by filing. However, a creditor perfecting by possession will prevail over a fLIer, and both will prevail over a judgment creditOr seeking to levy on the nme. This same three-part priority system also applies to investment property (substitucing control for possession), and negOtiable equity securities. However, "supporting obligations" (such as guaranties) follow the debt obligation, and do nOt require possession or perfection.
F. Control Agreements - The concepr of control utili7.ed with reference to investment property, such as brokerage accounts, has been extended for non-consumer loans to deposit accounts. In particular, the Bank can perfect a security interest in a borrower's deposit account at another bank, using a control agreement, which should also waive that bank's right to set-off. Of course, deposit accounts subject to one creditor's comrol agreement may contain cash proceeds relating to collateral of a second creditor. In that instance, the control agreement creditor has priority. Hence, the second creditor may want to require deposit of proceeds into a specific account, as to which the lender has agreed nor to accept comrol or exercise set-off. One other cautionary nme: deposits of proceeds into lock-box accounts (as with asset-based line of credit loans) must be
either used to pay down me debt or be returned to the debtor that's not the way to
perfect on cash. Pledges of lerur ofcr<dir rights must also be perfected by a control agreement.
Physically holding the letter of credit is not enough. For all types of control agreement perfection, which now includes commodities accoul1ts, you can still have
11 Tke ,lrkllllll,IW!er
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more than one, bur under RA9, they no longer stand on equal footing, bur rather first in time prevails. Sinc~ it is a pr~unt ~ncumbrana. a contractual ucurity inurNl will p"vail ov~r lh~ c/ainu of a bankn,ptcy tTustu mor~ urrainly than a m~u right to s~t
offwill. G. HeaJth-Care-Insurance Receivables, UC Rights, ECP - While insurance has genetally been excluded from Article 9,
dealing with default. A- Secured Party's Options After Default - Upon default by the debtOr, the secured party can take possession of or comrol over collateral, bur cannot breach the peace in
doing so. 9-503; Rev.9-609(b); Ark. Code Ann. 4-9-609(b). A secured party can collect collateral from account debtors and
mose obligared on the instruments ( 9 502; Rev. 9607, Ark. Code Ann. 4-9-607); sell
"health-care insurance receivables" can now
or retain the collateral to satisfy the debts (
be encumbered under RA9. like any other
9-504 and 505; Rev. 9-610 and 620; Ark. Code Ann. 4-9-610 and 620); or judicially
paymenc obligation. Likewise. letter of credit rights (but, not the right to draw on one) can be encumbered, as can electronic chanel paper (as rare as it may be in the Bank's normal operations). H. Bond Issues - Governmental obligations which were previously excluded from Article 9 are now included in RA9, to the extent nO( covered by a specific statute. I. Free Transferability - Existing Article 9 generally renders ineffective prohibitions against pledging accounts as collateral, and RA9 strengthens those prohibitions in the interest of free transferability. It also makes it clear that assuming debtors step completely into the shoes of their seller-assignors. J. Name Changes -If a borrower changes its name so as to be misleading (according to
the applicable search logic), collateral acquired four months after the change may
be free of the perfected lien. So, a new UCC-I filing may be required in the new name. If a Delaware corporacion re-domesticates to Arkansas, the resulting entity is normally a "new" debtor, bur, if the surviving emity uses essentially the same name, the one-year rule can apply. However, the loss of the lien on subsequently acquired collateral may also occur. K. Termination of Financing Statements Since there are penalties for failure to terminate financing statements when the
Bank has been paid off, obviously it will need to make sure its tickler system is active and accurate.
foreclose on the collateral pursuant to local
procedures (9501(1); Rev. 9-601(f); Ark. Code Ann. 4-9-60 I (f». i. Colkction: A secured party's collection remedy is expanded and clarified by RA9. Under Rev. 9-607(b) (Ark. Code Ann. 4 9607(b)), a secured party that is an assignee of an obligation secured by a real estate mortgage has the right to become the mortgagee of record upon the debtor's default in order to foreclose nonjudicially on the mortgage. A secured parry can also receive and apply against the secured debt funds in a deposit accoull( over which the
secured party has control. Rev. 9-607(a)(4) and (5); Ark. Code Ann. 4-9 607(a)(4) and (5). Finally, a secured party can also deduct its collection expenses for collections made in a commercially reasonable manner. Rev.
9-607(d); Ark. Code Ann. 4-9-607(d). ii. Dispositioll: A secured party may sell or dispose of the collareral by a "commercially reasonable" public or private sale, applying
me proceeds to satisfy me debt. 9-504; Rev. 9-610 and 615; Ark. Code Ann. 4-9-610 and 615. The obligation of commercial reasonableness cannot
be waived by the
debtor. 9-501(3)(b); Rev. 9-602(7); Ark. Code Ann. 4-9-602(7). RA9 furmer defines aspects ofdisposition and provides additional protection for other interested parcies. A secured party may
dispose of collateral by license (Rev. 9610(a); Ark. Code Ann. 4-9-610(a)), may disclaim or modify disposition warranties
(Rev.
9-610(e)), and
must provide
notification of disposition, if required, to all
VI. REMEDlF.S/REPOSSESSION. As much of the litigation under old Article 9 arises in the enforcement of a security interest, RA9 was drafted to resolve pasr disputes. The following revisions, while
lienholders of the collateral disclosed through a uee search (Rev. 9-611(b), (c), and (e); Ark. Code Ann. 4-9-611(b), (c), and (e». In commercial transactions, ten
not foolproof, should provide the flexibility
(10) days prior notice of disposition is considered to be per se reasonable. Rev. 9-
and effectiveness that your Bank needs in
612(b); Ark.
ode Ann. 49-612(b).