21.7 SECURED TRANSACTIONS
21.701 In General. Title 8.9A of the UCC applies to the rights of parties to a secured transaction. The title, as revised in 2001, is set forth as title 8.9A of the Virginia Code. A lending transaction often includes an agreement between the parties that the borrower will provide collateral to secure the loan. The creation of a security interest in personal property requires a
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security agreement between the debtor and the creditor; perfection of the security interest usually requires the filing of a financing statement.
21.702 New Types of Collateral Under Title 8.9A.
A. In General. In addition to its expanded scope, 64 revised title 8.9A defines types of collateral in which a security interest may be created and perfected under the UCC. The scope of title 8.9A is expanded to include kinds of property such as deposit accounts, health care receivables and commercial tort claims, that were excluded in original title 8.9.
B. Commercial Tort Claim. While an assignment of a claim arising in tort generally remains beyond the scope of the UCC, 65 title 8.9A governs the creation and perfection of a security interest in a "commercial tort claim." A commercial tort claim is a claim arising in tort with respect to which (i) the claimant is an organization or (ii) the claimant is an individual and the claim arose in the course of the claimant's business or profession and does not include damages arising out of personal injury to or death of an individual. 66 There are two special rules in title 8.9A concerning commercial tort claims. First, although generally a description of collateral in a security agreement is sufficient if it identifies the collateral by "type" as defined in title 8.9A, a commercial tort claim cannot be described without a descriptive component beyond "type" alone. 67 Second, although generally a security agreement may create a security interest in after-acquired collateral, an after-acquired collateral clause is not effective with respect to future commercial tort claims. 68
C. Deposit Account. Except with respect to consumer transactions, 69 title 8.9A also governs the creation and perfection of a security interest in a "deposit account." A deposit account is a demand, time, savings, passbook, or similar account maintained with a bank. The term does not
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include investment property or accounts evidenced by an instrument. 70 A security interest in a deposit account may be perfected only by control. 71
D. Health-Care-Insurance Receivable. While a transfer of an interest in or assignment of a claim under a policy of insurance generally remains beyond the scope of the UCC, 72 title 8.9A also governs the creation and perfection of a security interest in a "health-care-insurance receivable." A health-care-insurance receivable is an interest in or claim under a policy of insurance that is a right to payment of a monetary obligation for health care goods or services provided. 73
E. Letter-of-Credit Right. Title 8.9A also governs the creation and perfection of a security interest in a "letter-of-credit right," which is a right to payment or performance under a letter of credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. It does not include the right of the beneficiary to demand payment or performance under the letter of credit. 74 A security interest in a letter-of-credit right may be perfected only by control. 75
F. As-Extracted Collateral. As-extracted collateral means (i) oil, gas, or other minerals that are subject to a security interest created by a debtor having an interest in the minerals before extraction and attaches as they are extracted or (ii) accounts arising out of the sale at the wellhead or minehead of oil, gas, or other minerals in which the debtor had an interest before extraction. 76 Oil, gas, and other minerals that have not been extracted from the ground constitute real property, to which the UCC does not apply. Upon extraction, they become personal property (goods) in which a security interest may be created under the UCC. To take account of financing practices relating to the shift from real to personal property, title 8.9A contains special rules for perfecting a security interest in this type of property, which attaches upon extraction. 77
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21.703 Security Agreement. In general, a security agreement 78 is effective according to its terms between the parties and against purchasers and creditors, subject to other applicable law 79 and to other provisions of the UCC, such as those prohibiting the waiver and variance of rights and duties under the UCC 80 and those relating to perfection and priority. 81 A security interest is not enforceable and does not attach unless (i) value has been given; (ii) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and (iii) either (a) the debtor has authenticated 82 a security agreement that provides a description 83 of the collateral and, if the security interest covers timber to be cut, a description of the land concerned, (b) the collateral is not a certificated security and is in the possession of the secured party under Va. Code § 8.9A-313 pursuant to the debtor's security agreement, 84 (c) the collateral is a certificated security in registered form and the security certificate had been delivered to the secured party under Va. Code § 8.8A-301 pursuant to the debtor's security agreement, or (d) the collateral consists of deposit accounts, electronic chattel paper, investment property, letter-of-credit rights, or electronic documents and the secured party has control under Va. Code § 8.7-106, Va. Code § 8.9A-104, Va. Code § 8.9A-105, Va. Code § 8.9A-106, or Va. Code § 8.9A-107 pursuant to the debtor's security agreement. 85 Thus, unless the collateral is in the possession or control of the secured party or is a certificated security that has been delivered to the secured party, an authenticated record is required. This
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provision is in the nature of a statute of frauds. 86 A security agreement may provide that the obligations covered by the security agreement are to be secured by after-acquired collateral, except with respect to (i) consumer goods, other than an accession when given as additional security, unless the debtor acquires rights in them within 10 days after the secured party gives value or (ii) a commercial tort claim. 87 A security agreement may provide that collateral secures or that accounts, chattel paper, payment intangibles, or promissory notes are sold in connection with future advances or other value, whether or not the advances or value are given pursuant to commitment. 88 The phrase "pursuant to commitment," with respect to an advance made or other value given by a secured party, means pursuant to the secured party's obligation. 89 Under Va. Code § 8.9A-204(c), the parties are free to agree that a security interest secures any obligation whatsoever. Determining the obligations secured by collateral is solely a matter of construing the parties' agreement under applicable law. Title 8.9A rejects the holdings of cases decided under former title 8.9 that applied other tests, such as whether a future advance or other subsequently incurred obligation was of the same or a similar type or class as earlier advances and obligations secured by the collateral. 90
21.704 Priority over an Unperfected Security Interest. In general, an unperfected security interest is subordinate to the rights of (i) a person entitled to priority under Va. Code § 8.9A-322 (stating general rules for priorities among conflicting security interests in the same collateral) and (ii) a person that becomes a lien creditor before the earlier of the time that the security interest is perfected or one of the conditions for the attachment of the security interest in Va. Code § 8.9A-203(b)(3) is met and a financing statement covering the collateral is filed. 91 A lien creditor includes a trustee in bankruptcy 92 who has priority over a secured party with an unperfected security interest. 93
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21.705 Method of Perfection.
A. In General. Generally, a security interest is perfected by filing a financing statement, although there are exceptions to this requirement 94 and there are alternative methods of perfection. However, except as provided with respect to proceeds, a security interest in money may be perfected only by the secured party's taking possession, and a security interest in deposit accounts or letter-of-credit rights may be perfected only by control. 95
B. Permissive Filing. A security interest in chattel paper, negotiable documents, instruments, 96 or investment property may be perfected by filing. 97 However, perfection by filing alone is not advisable with respect to several classes of collateral because of the risk that a debtor in possession may dispose of these types of collateral and defeat the secured party's interest.
A security interest in tangible chattel paper may be perfected by taking possession, and a security interest in electronic chattel paper may be perfected by taking control. 98 The security interest of a party who takes possession or control of chattel paper may qualify for priority over a competing security interest perfected by filing alone. 99
Likewise, a security interest in tangible negotiable documents may be perfected by taking possession. 100 A security interest in a negotiable document perfected by filing alone without the secured party's taking possession may be subject to the priority of the rights of a holder to which the
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document has been duly negotiated under title 8.7 of the Virginia Code. 101 Similarly, a security interest in instruments may be perfected by taking possession. 102
A security interest in an instrument perfected by filing alone is subject to defeat by certain subsequent purchasers...
