UCC security interest oral agreement - when is this actually valid?
I'm helping a client who's insisting they have a valid security interest based on a handshake deal from 2019. They never filed a UCC-1 and there's no written security agreement. The collateral is manufacturing equipment worth about $85K. I know the general rule is written agreements for security interests, but I'm second-guessing myself on the exceptions. When can a security interest actually be created through an oral agreement under Article 9? I need to give them definitive guidance on whether they have any enforceable rights here or if they're out of luck without proper documentation.
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Rhett Bowman
The short answer is almost never for equipment that valuable. You need either a written security agreement signed by the debtor OR the secured party has to have possession/control of the collateral. Since we're talking about manufacturing equipment, possession isn't realistic. Without a signed writing, that oral agreement is worthless for creating an enforceable security interest.
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Abigail Patel
•This is exactly right. UCC 9-203 is crystal clear - you need either possession or a written agreement. No exceptions for handshake deals on equipment.
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Daniel White
•Wait, what about if the debtor made payments acknowledging the security interest? Doesn't that count as some kind of written evidence?
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Nolan Carter
Your client is in a tough spot. I've seen this scenario play out badly before. Even if they had some kind of oral understanding, proving it in court without documentation is nearly impossible. Plus, even if you could somehow establish the oral agreement, they still never perfected with a UCC-1 filing, so any other creditor who filed properly would have priority.
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Natalia Stone
•Exactly this. Attachment and perfection are two separate issues. They failed on both counts here.
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Tasia Synder
•So frustrating when clients think a handshake is enough for six-figure equipment deals. The UCC exists for a reason!
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Selena Bautista
I ran into something similar last year with a client who swore they had an oral security agreement on inventory. Spent way too much time researching every possible exception before accepting the obvious - no written agreement means no security interest for goods that can't be possessed. I ended up using Certana.ai's document verification tool to double-check that we weren't missing any filing records, but of course there was nothing there since they never filed a UCC-1 in the first place.
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Mohamed Anderson
•How does that Certana tool work for checking existing filings? We do a lot of due diligence work.
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Selena Bautista
•You just upload PDFs of agreements or existing UCC documents and it cross-checks everything - debtor names, filing numbers, collateral descriptions. Super helpful for catching inconsistencies we might miss manually.
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Ellie Perry
•That sounds useful but probably overkill for this situation since there's clearly no valid security interest to begin with.
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Landon Morgan
The possession requirement exists precisely because oral agreements are so hard to prove and enforce. With equipment, the debtor obviously needs to keep using it, so possession by the secured party isn't practical. That's why Article 9 requires the written security agreement for these situations. Your client needed to get a signed security agreement AND file a UCC-1 to have any enforceable rights.
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Teresa Boyd
•Are there any states that have different rules on this? I thought UCC Article 9 was pretty uniform.
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Landon Morgan
•The basic attachment requirements are uniform across states. Some states have minor variations in other areas, but the written agreement requirement is standard everywhere.
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Lourdes Fox
I hate being the bearer of bad news, but your client is probably looking at being an unsecured creditor at best. Without a written security agreement, there's no security interest. Without a UCC-1 filing, there's no perfection. They're going to be at the back of the line if the debtor has financial problems.
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Bruno Simmons
•This is why I always tell clients to document everything. A simple security agreement and UCC-1 filing would have protected them completely.
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Aileen Rodriguez
•The good news is it's never too late to do it right going forward, assuming the debtor is still willing to cooperate.
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Zane Gray
Just to be thorough - you mentioned this was from 2019. Have you confirmed there are no emails, texts, or other written communications that might evidence the security agreement? Sometimes clients think they only have an oral agreement when there's actually some written documentation floating around.
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Danielle Campbell
•Good point. I should dig deeper into their communications. Though even if we found something, the perfection issue would still be a major problem.
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Maggie Martinez
•True, but at least they'd have attachment. Then it's just a matter of filing a UCC-1 now if the debtor agrees.
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Alejandro Castro
I've been doing secured transactions for 15 years and I can count on one hand the number of times an oral security agreement was enforceable. It's always when the secured party had actual possession of the collateral - think pawn shops or title loans where they hold the title. For equipment still in the debtor's possession, you absolutely need that written agreement.
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Monique Byrd
•What about consignment situations? Those can sometimes work without written agreements, right?
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Alejandro Castro
•Consignments have their own rules under 9-109. Still need to file a UCC-1 in most cases though, and that doesn't sound like what we're dealing with here.
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Jackie Martinez
Bottom line: tell your client they need to either get a written security agreement signed now (if the debtor is cooperative) and file a UCC-1, or accept that they're an unsecured creditor. The 2019 oral agreement doesn't create any enforceable security interest in equipment they don't possess.
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Lia Quinn
•Assuming the debtor is still solvent and willing to sign, would a new security agreement cover the original debt from 2019?
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Jackie Martinez
•Yes, as long as the security agreement properly describes the collateral and the obligation being secured. The debt doesn't have to be new.
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Haley Stokes
This is exactly why I use document verification tools now for all my UCC work. I had a similar case where I thought we had no written documentation, but after running everything through Certana.ai's system, we found an email that arguably constituted a security agreement. Saved the client's position completely. Worth checking every possible document just to be sure.
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Asher Levin
•That's smart. Even a brief email can sometimes satisfy the writing requirement if it contains the right elements.
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Serene Snow
•What elements make an email sufficient for a security agreement? Just curious about the minimum requirements.
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Issac Nightingale
Unfortunately, your client learned an expensive lesson about the importance of proper documentation. Article 9 is pretty unforgiving when it comes to the basic requirements. No written agreement + no possession = no security interest. It's that simple for equipment collateral.
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Romeo Barrett
•At least now they know for future deals. Sometimes expensive lessons are the ones that stick.
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Marina Hendrix
•True, but $85K is a pretty steep tuition for learning basic secured transactions law.
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Josef Tearle
I feel for your client, but everyone here is absolutely right - without a written security agreement, there's no enforceable security interest in equipment that can't be possessed. I've had to deliver this same bad news to clients before, and it's never easy. The UCC 9-203 requirements are ironclad: you need either possession/control OR a written agreement signed by the debtor. Since we're talking about manufacturing equipment the debtor obviously needs to keep using, possession isn't an option. My advice is to be direct with them about their position as an unsecured creditor, but also explore whether the debtor might be willing to enter into a proper security agreement now to secure the existing debt. At least then they'd have protection going forward, even if they can't fix the 2019 issue.
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Mason Lopez
•This is excellent practical advice. I'm curious though - when you say explore whether the debtor might enter into a proper security agreement now, are there any potential preference or fraudulent transfer issues to consider if the debtor is already experiencing financial distress? I assume timing and the debtor's solvency would be key factors in whether this approach is viable.
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