When a security interest in personal property such as equipment, inventory, goods, or rights to payment, etc. (“collateral”) is to be used to secure payment or performance of an obligation such as a loan, various documents can be involved. A security agreement is used to grant the security interest. The document granting the security interest may bear the title “Security Agreement” or it may bear another title. The title of the document is not as important as the substance of the agreement in the body of the document. To do what is known as perfecting the security interest often requires filing a UCC-1 Financing Statement with a state filing office. In the state of Washington, that filing office is the state Department of Licensing. The security agreement and the UCC-1 Financing Statement both require a description of the collateral involved. However, the standards for description of collateral differ between the two documents.
In a security agreement, collateral must be “reasonably identified.” This can be done by specific listing, such as when only one item of collateral is involved. For example, the security interest may be limited to a photocopier identified by brand, model, and serial number. It can also be done by listing categories of property defined by statute, such as equipment, inventory, goods, rights to payment, fixtures, farm products, and several other categories. There are other acceptable methods of reasonably identifying collateral in a security agreement. However, a description as “all the debtor’s assets” or “all the debtor’s personal property” or something similar is not acceptable in a security agreement.
On the other hand, a UCC-1 Financing Statement may mirror the description of collateral provided in the security agreement or it may indicate that it covers all assets or all personal property. Note the possibility that the description as “all assets” or “all personal property” in the financing statement could be broader, and appear to include more collateral, than the description in the security agreement. For someone wanting to transact business with the grantor of such a security interest and potentially wanting their own security interest in some or all of that grantor’s assets, it can be important to know the extent of any security interests previously granted. This will most likely lead to questions about the actual extent of the security interest or security interests previously granted and requests for documentary evidence of the extent of such interests.
To learn more about How Do You Describe Personal Property Collateral?, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100