Okla. Stat. tit. 12A § 1-9-207

Current through Laws 2024, c. 453.

Section 1-9-207 - [Effective Until 11/1/2024] Rights and duties of secured party having possession or control of collateral

(a) Except as otherwise provided in subsection (d) of this section, a secured party shall use reasonable care in the custody and preservation of collateral in the secured party's possession. In the case of chattel paper or an instrument, reasonable care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed.

(b) Except as otherwise provided in subsection (d) of this section, if a secured party has possession of collateral:

(1) reasonable expenses, including the cost of insurance and payment of taxes or other charges, incurred in the custody, preservation, use, or operation of the collateral are chargeable to the debtor and are secured by the collateral;

(2) the risk of accidental loss or damage is on the debtor to the extent of a deficiency in any effective insurance coverage;

(3) the secured party shall keep the collateral identifiable, but fungible collateral may be commingled; and

(4) the secured party may use or operate the collateral:

(A) for the purpose of preserving the collateral or its value;

(B) as permitted by an order of a court having competent jurisdiction; or

(C) except in the case of consumer goods, in the manner and to the extent agreed by the debtor.

(c) Except as otherwise provided in subsection (d) of this section, a secured party having possession of collateral or control of collateral under Section 7-106, 1-9-104, 1-9-105, 1-9-106, or 1-9-107 of this title:

(1) may hold as additional security any proceeds, except money or funds, received from the collateral;

(2) shall apply money or funds received from the collateral to reduce the secured obligation, unless remitted to the debtor; and

(3) may create a security interest in the collateral.

(d) If the secured party is a buyer of accounts, chattel paper, payment intangibles, or promissory notes or a consignor:

(1) subsection (a) of this section does not apply unless the secured party is entitled under an agreement:

(A) to charge back uncollected collateral; or

(B) otherwise to full or limited recourse against the debtor or a secondary obligor based on the nonpayment or other default of an account debtor or other obligor on the collateral; and

(2) subsections (b) and (c) of this section do not apply.

Okla. Stat. tit. 12A, § 1-9-207

Added by Laws 2000 , SB 1519, c. 371, § 17, eff. 7/1/2001; Amended by Laws 2005 , HB 2035, c. 140, § 61, eff. 1/1/2006.

Oklahoma Code Comment

Under current law a secured party must use reasonable care in the custody of collateral in its possession. The revision mandates the use of reasonable care when a secured party is in either possession or control (see sections 9-104 through 9-107 ) but does not apply to consignments, or to cases involving sales of receivables in which the buyer has no recourse against the debtor/seller or a secondary obligor. This reflects the fact that a seller of accounts, chattel paper, notes, or payment intangibles retains no interest in the collateral (see section 9-318 ) , and in such circumstances is not disadvantaged by the secured party's noncompliance with the obligations regarding treatment of collateral imposed by this section. As the Uniform Commercial Code does not define "possession," that is left to case by case treatment. For example, Liberty Nat. Bank and Trust Co. of Oklahoma City v. Ginn, 832 P.2d 33 (Okla. App.1992), that held a secured party's agreement to allow a second secured party to sell horses in which both had security interests did not place the first secured party in "possession," is still operable law.

The effect of these provisions cannot be varied by agreement as a general rule (see sections 1-102(3) and 9-602), but standards of reasonable care may be established by agreement (Reed v. Central Nat. Bank of Alva, 421 F.2d 113 (10th Cir. 1970)), and so may the manner and extent of permitted use of the collateral by the secured party except in the case of consumer goods ( section 9-207(b)(4)(C) ).

Old section 9-207 provided that the secured party could repledge the collateral upon terms that did not impair the debtor's right to redeem the collateral. The revision provides simply that the secured party may create a security interest in the collateral. Official Comments 5 and 6 suggest that no change in law is intended by this modification, since the debtor's rights in this respect are governed by section 9-623 . The revised section also removes the sanction for violation to Part 6 of revised Article 9 ( section 9-625), but without intent to change the law.

A secured party has the remedies of any secured party under Part 6 of revised Article 9, subject to the duties imposed by this provision if the secured party is in possession or control before or as a result of default. See section 9- 601(b) . See also Farmers State Bank in Afton v. Ballew, 626 P.2d 337 (Okla. App. 1981) and section 9-601(a) and (c) .

This section is set out more than once due to postponed, multiple, or conflicting amendments.