Security Interest in Assignment of Accounts Receivable or Contract Rights - Explained
How Does a Security Interest Attach?
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How is a security interest created through the assignment of accounts receivable and contract rights?
Generally, the sale or assignment of rights in accounts, payment intangibles, or promissory notes (account) creates a security interest for the individual to whom the account is assigned. This attaches the security interest to the account. Article 9 requires that an individual file a financing statement to perfect a security interest in an account. There are, however, two exceptions that allow the assignee of the account to perfect a security interest without publicly filing a financing statement.
Next Article: Perfection of a Security Interest by Possession Back to: SECURED TRANSACTIONS
Single Account to Satisfy a Debt?
The assignment of a single account in satisfaction of a preexisting debt;
Example: ABC Inc., transfers and account payable to 123 Inc., in satisfaction of a debt that ABC owed to 123. While ABC maintains control over the account payment, 123 has a security interest in the account that is perfected without filing a financing statement.
The assignor transfers a limited number of accounts to the assignee that does not constitute a significant number of the assignors accounts.
Note: For automatic perfection to apply in this situation, the transferred account cannot constitute a significant percentage of the outstanding accounts of the transferor and the recipient cannot regularly take assignment of accounts in satisfaction of debts.
How do you feel about the ability of an assignee to perfect a security interest in an intangible account? Why do you think it is important to grant the assignee of an account receivable or contract benefits a security interest? Hint: Think about who is in control of the accounts receivable and contract rights before and after the assignment. Do you agree with the above-referenced exceptions to the requirement to file a financing statement? Why or why not?
ABC Corp sells product at wholesale. It regularly takes payment on accounts for 90 days. These accounts sit in accounts receivable until paid. ABC Corp transfers several of these accounts to 123 Corp but maintains control over the account in order to effectuate collections. What do we need to know about this transfer to determine whether 123 Corp has a perfected security interest in the accounts?
- Secured Transactions Law (Intro)
- What is a Security Interest?
- Pledge as Collateral
- Cross Collateralization
- After-Acquired Collateral
Unsecured Loan Definition
- Unencumbered Asset
- What is a Secured Creditor?
- Unsecured Creditor
- What are the benefits of security interests for creditors?
- Limited Recourse Debt
Uniform Commercial Code - Article 9
- What are the common types of security interest in real property (land)?
- What is a mortgage?
- How does a security interest protect the mortgage holder?
- Lis Pendens
- Deficiency Judgment
- What is a Deed of Trust or Security Deed?
- What is a Land Sale Contract?
- What is a security interest in personal property?
- How does one establish a security interest in personal property?
- What is Perfection of a security interest?
- What are the methods of perfecting a security interest in personal property?
- UCC-1 Statement
- How does one establish a security interest in real property (land)?
- Register of Deeds
- What is Automatic Perfection of a security interest?
- What is a Purchase Money Security Interest (PMSI) in consumer goods?
- What is a Purchase Money Grace Period for a PMSI in non-consumer goods?
- How does one continue perfection of a PMSI in non-consumer goods?
- What is Temporary Automatic Perfection in Proceeds from the sale of goods?
- How is a security interest created in Assignment of Accounts Receivable and Contract Rights?
- How does one perfect a security interest by Possession of the collateral?
- How does on perfect a security interest by Control of collateral?
- How does one perfect a security interest by Filing a Financing Statement?
- What authorization is required to file a financing statement?
- Where is the appropriate office to file a financing statement?
- Continuation Statement
- What is Priority of a security interest?
- What role does perfection play in establishing the Priority of a secured party?
- What are the common conflicts arising as to priority of a security interest?
- What is the priority of parties secured by common law and statutory liens?
- Lien - Definition
- Blanket Lien Definition
- Unperfected Lien
- Possessory Lien
- Non-Possessory Lien
- Tax Lien
- Mechanics Lien Definition
- Construction Lien
- Cloud on Title
- What is the priority of a buyer of collateral that is subject to a security interest?
- What is required to be a buyer in the ordinary course of business?
- How does 9-320(b) protect consumers who purchase goods from other consumers?
- What is the Shelter Principle?
- What are the general Priority Rules for Conflicting security interests?
- Subordination Agreement
- Who has Priority in Proceeds from the sale of collateral?
- What is a secured party's priority in future advances to a debtor?
- What is the priority of a PMSI in goods (other than inventory and livestock)?
- What is the priority of a PMSI in inventory?
- What is the priority of conflicting PMSIs?
- What is the priority of security interests in fixtures?
- What is the scope of fixture priority rules?