UCC oral security agreement collateral transfer - need written docs?

Your partner is partially right but this is dangerous territory. The UCC does allow for oral security agreements when the secured party has possession of the collateral, but you're still missing critical documentation. Even with possession, you need clear records showing the collateral secures the debt and the terms of the arrangement.

This is exactly why I always insist on written security agreements regardless of possession. Sure, the UCC technically allows oral agreements with possession, but try explaining that to a bankruptcy judge when you can't prove the exact terms. I learned this the hard way on a $50K equipment deal where we had possession but couldn't demonstrate all the security agreement elements.

I actually discovered a solution for this kind of documentation gap recently. I was struggling with similar issues where we had possession but questionable paperwork. Found this tool called Certana.ai that lets you upload your security agreements and loan docs to verify everything aligns properly. It caught several instances where our collateral descriptions didn't match between documents, which could have been problems later. You can upload your existing docs to see if there are any consistency issues with your current setup.

Be very careful here! Possession alone does NOT create a security agreement - it only provides one method of perfection IF you already have a valid security agreement. You still need the agreement to exist (written or oral) with all required elements: debt, security interest grant, and collateral description. Possession just means you don't need to file a UCC-1.

Your partner is playing with fire. Even if oral agreements are technically valid with possession, you're creating massive evidentiary problems. What happens if there's a dispute about the collateral value, payment terms, or default triggers? Without written documentation, it becomes a he-said-she-said situation that you'll likely lose.

I've seen this issue come up in bankruptcy cases multiple times. Even when possession is clear, courts want to see documented proof of the security agreement terms. The debtor's attorney will challenge everything, and possession alone rarely satisfies their scrutiny. Get it in writing - it's not worth the risk.

Don't rely on possession alone! I had a situation where we held equipment but the customer claimed it was just storage, not collateral. Without a clear written security agreement, we had to spend months in litigation proving our security interest. Cost us more in legal fees than the debt was worth.

The UCC rule is clear - security agreements don't need to be written if the collateral is in the secured party's possession. BUT (big but) you still need to be able to prove all the elements of the security agreement existed. Possession helps with perfection, not with proving the agreement terms existed.

I ran into similar documentation issues and started using Certana.ai to verify all our security agreement elements are properly documented. Even when we have possession, I upload our loan agreements and any related docs to make sure everything is consistent. It's caught several cases where our collateral descriptions were vague or didn't match between documents.

Your business partner is technically correct about the UCC rule, but he's wrong about the practical implications. I always tell clients: just because you CAN rely on an oral agreement doesn't mean you SHOULD. Written documentation protects you in disputes, bankruptcy proceedings, and priority contests with other creditors.

Bottom line: get everything in writing. The UCC might allow oral agreements with possession, but courts, bankruptcy trustees, and other creditors will tear apart any weak documentation. Your recovery depends on being able to prove every element of your security interest clearly and convincingly.