Okla. Stat. tit. 12A § 1-9-203
Okla. Stat. tit. 12A, § 1-9-203
Oklahoma Code Comment
This section continues to provide the formal requisites for enforceability and attachment of most security interests. However, it does not control when other provisions of the Code provide specific rules for the creation and perfection of security interests. See section 9-203(c) , referring to section 4-210 on the security interest of a collecting bank, section 5-118 on the security interest of a letter of credit issuer or nominated person, section 9-110 on a security interest arising under Article 2 or Article 2A, and section 9-206 on certain security interests in investment property.
As to the latter type of collateral, section 9-206 only governs where a security interest is created by the operation of the statute; otherwise section 9-203 controls. The adoption in Oklahoma of revised UCC Article 8 caused the return to Article 9 of the rules regarding attachment and perfection of a security interest in collateral which was referred to in pre-revision Article 8 only as a "security." However, Article 8 now addresses both "direct" and "indirect" holding systems, necessitating a new type of collateral referred to as "investment property." Investment property includes collateral that may be classified as a "security," "security certificate," "uncertificated security," "security entitlement," "securities account," "commodity contract" or "commodity account." See section 9-102(a)(49) . The portions of section 9-203 relating to investment property replace pre-revision sections 8-313 and 8-321 (adopted by Oklahoma in 1984), which provided for the attachment of a security interest through "transfer" of the security. Under section 9-203 , when the collateral is investment property, a security interest may attach to the collateral by the secured party either taking possession or obtaining "control" of the collateral pursuant to agreement, or by describing the collateral in a security agreement authenticated by the debtor. Of course, as in the case of a security interest in any type of collateral, value also must be given and the debtor must have rights or the power to transfer rights in the collateral. As to the last requirement, see Security State Bank of Wewoka v. Dooley, 604 P.2d 153 (Okla. App. 1979); National Livestock Credit Corp. v. First National Bank of Harrah, 503 P.2d 1283 (Okla. App. 1972); Morton Booth Co. v. Tiara Furniture, Inc., 564 P.2d 210 (Okla. 1977); In re Ralls & Associates, Inc., 114 B.R. 744 (Bankr. W.D. Okla. 1990); Pontchartrain State Bank v. Poulson, 684 F.2d 704 (10th Cir. 1982); and Fairview State Bank v. Edwards, 739 P.2d 994 (Okla. 1987).
Notice that "control" is not necessary either for a security interest to attach to investment property under revised section 9-203 or for a security interest to be perfected in investment property. However, the concept of control is extremely important for purposes of priority of a security interest in investment property. For example, although a security interest may attach under this section through a security agreement which sufficiently describes the collateral and may be perfected through filing a financing statement, the secured party's attachment and perfection without control provides no priority against a third party who has obtained control over the investment property. See revised section 9-328 .
A security interest will attach under this section by way of the secured party obtaining "control pursuant to agreement" also in the cases of deposit accounts, electronic chattel paper, and letter of credit rights. See revised section 9-203(a) and (b) ( 3 )(D), and sections 9-104 through 9-107 as to what constitutes "control." A security interest in property that can be possessed (revised section 9-313 ) will attach if the creditor or one holding for that creditor has possession. See revised section 9-203(b)(3)(B) and In re Fish, 128 B.R. 468 (Bankr. N.D. Okla. 1991).
Nonetheless, the basic method for attachment remains the authenticating (signing, or the electronic equivalent of signing) by the debtor of a security agreement that provides a description of the collateral (and if it covers timber to be cut, but no longer crops growing or to be grown, a description of the land concerned). The Oklahoma case law interpreting this long standing basic method remains valid for the most part. See generally Wilmot v. Central Oklahoma Gravel Corp., 620 P.2d 1350 (Okla. App.1980); In re Sooner Oil & Gas Corp., 24 B.R. 479 (1982). In particular, an authorized agreement granting a security interest must exist, and normally the existence of a financing statement or note alone is not enough, but a letter rather than a formal security agreement may serve if it meets the requirements. See Pontchartrain State Bank v. Poulson, 684 F.2d 704 (10th Cir. 1982); In re Dean & Jean Fashions, Inc., 329 F.Supp. 663 (D.C. Okla. 1971); Branch v. Steph, 389 F.2d 233 (10th Cir. 1968); In re Great Basin Transport, Inc., 32 B.R. 365 (1983); In re R. W. Southwestern, Inc., 23 B.R. 252 (1982); First Nat. Bank and Trust Co. of Stillwater v. McKown, 867 P.2d 1342 (Okla. App. 1993); Shebester v. Triple Crown Insurers, 826 P.2d 603 (Okla. 1992), answer to certified question conformed to 974 F.2d 135; Whelan v. Midland Mortg. Co., 591 P.2d 287 (Okla. 1978); and Stromblad v. Wilderness Adventurer, Inc., 577 P.2d 918 (Okla. App. 1978).
Parol evidence normally cannot be utilized to cure any deficiency as section 9- 203 is in the nature of a statute of frauds. Mitchell v. Shepherd Mall State Bank, 324 F.Supp. 1029 (D. C. Okla. 1971), aff'd, 458 F.2d 700; In re Public Leasing Corp., 488 F.2d 1369 (10th Cir. 1973); In re R.W. Southwestern, Inc., 23 B.R. 252 (1982); and Economy Finance Agency v. Stickney, 738 P.2d 1386 (Okla. App. 1987).
The description of the collateral in the security agreement must be adequate to reasonably identify it. See DWG, Inc. v. Peltier, 563 P.2d 152 (Okla. 1977) (by brand and model number); City Bank & Trust Co. v. Warthen Service Co., 535 P.2d 162 (Nev. 1975) (applying a minor error rule); and Grant Square Bank and Trust Co. v. Green, 629 P.2d 1302 (Okla. App. 1981) (after acquired clause that did not repeat limitation for consumer goods was sufficient). See revised section 9-108 .
The revision also makes several other changes and clarifications. First, section 9-203(h) and (i) move the rules, that the attachment of a security interest in either a securities account or a commodity account also causes it to attach to security entitlements or commodity contracts carried in the account, from former section 9-115 , which latter section is repealed. More importantly, section 9-203(g) clarifies that "the mortgage follows the note," which long has been the rule in Oklahoma for real estate transactions. See, e.g., Foster v. Augustanna College & Theological Seminary, 218 P.2d 335 (Okla. 1923).
The revision adds an entirely new provision in section 9-203(d) and (e) that clarifies when a "new debtor" (defined at section 9-102(a)(56) ) becomes bound on another party's security agreement and that provides if a "new" debtor becomes bound as a debtor by a security agreement entered into by another person, the security agreement continues to satisfy the requirement of a security agreement under section 9-203 as to existing or after-acquired property of the new debtor (provided the property is described in the agreement), and no other (new) agreement is necessary to make a security interest in the property enforceable. The intent is to clarify when in situations involving changes in business structure (i.e., a proprietorship incorporates, mergers, etc.) the new debtor "becomes bound." Perfection is governed in section 9-508 and priority in sections 9-325 and 9-326 . The Oklahoma cases in this area of law will need to be reviewed under these new provisions. See Georgia-Pacific Corp. v. Lumber Products Co., 590 P.2d 661 (Okla. 1979) (inventory of sole proprietorship assigned to corporate entity); In re LMS Holding Co., 153 B.R. 581 (Bankr. N.D. Okla. 1993) (purchaser of assets took subject to security interest and creditor's security interest continued in purchasers' after acquired inventory); and Smiley v. Wheeler, 602 P.2d 209 (Okla. 1979) (secured party had security interest in purchaser's after acquired equipment).
Finally, revised section 9-203(f) continues the rule that an attached security interest carries a right to proceeds, and adds a provision which provides that a security interest in collateral also gives the secured party a security interest in any supporting obligation (under revised section 9-102(a)(77) , a secondary obligation or letter of credit right that supports payment or performance of an account, chattel paper, a document, a general intangible, an instrument, or investment property) with respect to the collateral. This seems implicit in current law but clarification is helpful as no Oklahoma decision has apparently addressed this issue.