Commercial Law & UCC

Receivables are rights to be paid. Under UCC Article 9, many kinds of receivables are “accounts,” and Article 9 governs both loans secured by accounts and outright sales of accounts.

A forward flow agreement is a contract in which a seller agrees to sell, and a buyer agrees to buy, receivables on a recurring basis — for example, every month — on terms set in advance.

A financing statement — often called a UCC-1 — is a public notice filed with a state filing office to perfect certain security interests under UCC Article 9.

The Uniform Commercial Code is a model law written by the Uniform Law Commission and the American Law Institute. It becomes law only when a state legislature enacts it — and every state has enacted it into its own statutes.

A negotiable instrument is a written promise or order to pay a fixed amount of money that meets the requirements of UCC Article 3 — for example, many promissory notes and checks.

How a negotiable note moves from one owner to another under UCC Article 3 — by indorsement and delivery, or by transfer.

Under UCC Article 3, the right to enforce a negotiable note belongs to a “person entitled to enforce” — a status that turns on possession and the holder rules, not on ownership alone.

A holder in due course is a holder who takes a negotiable instrument for value, in good faith and without notice of certain problems — and as a result takes it free of many defenses.

An assignment transfers rights from one party (the assignor) to another (the assignee). In lending, loans, mortgages and receivables are routinely assigned, sold and transferred.