CO Code § 4-9-203 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 9 - Secured Transactions|Part 2 - Effectiveness of Security Agreement; Attachment of Security Interest; Rights of Parties to Security Agreement|§ 4-9-203. Attachment and Enforceability of Security Interest; Proceeds; Supporting Obligations; Formal Requisites

  A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.    Except as otherwise provided in subsections (c) to (i) of this section, a security interest is enforceable against the debtor and third parties with respect to the collateral only if:   Value has been given;    The debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and    One of the following conditions is met:   The debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned;    The collateral is not a certificated security and is in the possession of the secured party under section 4-9-313 pursuant to the debtor's security agreement;    The collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under section 4-8-301 pursuant to the debtor's security agreement; or    The collateral is deposit accounts, electronic chattel paper, investment property, letter-of-credit rights, or electronic documents, and the secured party has control under section 4-7-106, 4-9-104, 4-9-105, 4-9-106, or 4-9-107 pursuant to the debtor's security agreement.          Subsection (b) of this section is subject to section 4-4-210 on the security interest of a collecting bank, section 4-5-117.5 on the security interest of a letter-of-credit issuer or nominated person, section 4-9-110 on a security interest arising under article 2 or 2.5 of this title, and section 4-9-206 on security interests in investment property.    A person becomes bound as debtor by a security agreement entered into by another person if, by operation of law other than this article or by contract:   The security agreement becomes effective to create a security interest in the person's property; or    The person becomes generally obligated for the obligations of the other person, including the obligation secured under the security agreement, and acquires or succeeds to all or substantially all of the assets of the other person.       If a new debtor becomes bound as debtor by a security agreement entered into by another person:   The agreement satisfies paragraph (3) of subsection (b) of this section with respect to existing or after-acquired property of the new debtor to the extent the property is described in the agreement; and    Another agreement is not necessary to make a security interest in the property enforceable.       The attachment of a security interest in collateral gives the secured party the rights to proceeds provided by section 4-9-315 and is also attachment of a security interest in a supporting obligation for the collateral.    The attachment of a security interest in a right to payment or performance secured by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage, or other lien.    The attachment of a security interest in a securities account is also attachment of a security interest in the security entitlements carried in the securities account.    The attachment of a security interest in a commodity account is also attachment of a security interest in the commodity contracts carried in the commodity account.    No security interest in consumer goods owned by a married person and used primarily for personal, family, or household purposes, other than property referred to in section 4-9-311 and other than any purchase money security interest, shall be enforceable unless the security agreement describing the collateral in accordance with section 4-9-108 is authenticated by both husband and wife if they are residing together at the time the security interest is created.     History. Source: L. 2001: Entire article R&RE, p. 1334, § 1, effective July 1. L. 2006: (b)(3)(D) amended, p. 500, § 34, effective September 1.    Editor's note:    The provisions of this section are similar to provisions of several former sections as they existed prior to 2001. For a detailed comparison, see the comparative tables located in the back of the index.    Colorado legislative change: Colorado added a new subsection (j).     OFFICIAL COMMENT   1. Source. Former Sections 9-203, 9-115(2), (6).   2. Creation, Attachment, and Enforceability. Subsection (a) states the general rule that a security interest attaches to collateral only when it becomes enforceable against the debtor. Subsection (b) specifies the circumstances under which a security interest becomes enforceable. Subsection (b) states three basic prerequisites to the existence of a security interest: value (paragraph (1)), rights or power to transfer rights in collateral (paragraph (2)), and agreement plus satisfaction of an evidentiary requirement (paragraph (3)). When all of these elements exist, a security interest becomes enforceable between the parties and attaches under subsection (a). Subsection (c) identifies certain exceptions to the general rule of subsection (b).   3. Security Agreement; Authentication. Under subsection (b)(3), enforceability requires the debtor's security agreement and compliance with an evidentiary requirement in the nature of a Statute of Frauds. Paragraph (3)(A) represents the most basic of the evidentiary alternatives, under which the debtor must authenticate a security agreement that provides a description of the collateral. Under Section 9-102, a “security agreement” is “an agreement that creates or provides for a security interest.” Neither that definition nor the requirement of paragraph (3)(A) rejects the deeply rooted doctrine that a bill of sale, although absolute in form, may be shown in fact to have been given as security. Under this Article, as under prior law, a debtor may show by parol evidence that a transfer purporting to be absolute was in fact for security. Similarly, a self-styled “lease” may serve as a security agreement if the agreement creates a security interest. See Section 1-203 (distinguishing security interest from lease).   4. Possession, Delivery, or Control Pursuant to Security Agreement. The other alternatives in subsection (b)(3) dispense with the requirement of an authenticated security agreement and provide alternative evidentiary tests. Under paragraph (3)(B), the secured party's possession substitutes for the debtor's authentication under paragraph (3)(A) if the secured party's possession is “pursuant to the debtor's security agreement.” That phrase refers to the debtor's agreement to the secured party's possession for the purpose of creating a security interest. The phrase should not be confused with the phrase “debtor has authenticated a security agreement,” used in paragraph (3)(A), which contemplates the debtor's authentication of a record. In the unlikely event that possession is obtained without the debtor's agreement, possession would not suffice as a substitute for an authenticated security agreement. However, once the security interest has become enforceable and has attached, it is not impaired by the fact that the secured party's possession is maintained without the agreement of a subsequent debtor (e.g., a transferee). Possession as contemplated by Section 9-313 is possession for purposes of subsection (b)(3)(B), even though it may not constitute possession “pursuant to the debtor's agreement” and consequently might not serve as a substitute for an authenticated security agreement under subsection (b)(3)(A). Subsection (b)(3)(C) provides that delivery of a certificated security to the secured party under Section 8-301 pursuant to the debtor's security agreement is sufficient as a substitute for an authenticated security agreement. Similarly, under subsection (b)(3)(D), control of investment property, a deposit account, electronic chattel paper, or a letter-of-credit right satisfies the evidentiary test if control is pursuant to the debtor's security agreement.   5. Collateral Covered by Other Statute or Treaty. One evidentiary purpose of the formal requisites stated in subsection (b) is to minimize the possibility of future disputes as to the terms of a security agreement (e.g., as to the property that stands as collateral for the obligation secured). One should distinguish the evidentiary functions of the formal requisites of attachment and enforceability (such as the requirement that a security agreement contain a description of the collateral) from the more limited goals of “notice filing” for financing statements under Part 5, explained in Section 9-502, Comment 2. When perfection is achieved by compliance with the requirements of a statute or treaty described in Section 9-311(a), such as a federal recording act or a certificate-of-title statute, the manner of describing the collateral in a registry imposed by the statute or treaty may or may not be adequate for purposes of this section and Section 9-108. However, the description contained in the security agreement, not the description in a public registry or on a certificate of title, controls for purposes of this section.   6. Debtor's Rights; Debtor's Power to Transfer Rights. Subsection (b)(2) conditions attachment on the debtor's having “rights in the collateral or the power to transfer rights in the collateral to a secured party.” A debtor's limited rights in collateral, short of full ownership, are sufficient for a security interest to attach. However, in accordance with basic personal property conveyancing principles, the baseline rule is that a security interest attaches only to whatever rights a debtor may have, broad or limited as those rights may be.   Certain exceptions to the baseline rule enable a debtor to transfer, and a security interest to attach to, greater rights than the debtor has. See Part 3, Subpart 3 (priority rules). The phrase, “or the power to transfer rights in the collateral to a secured party,” accommodates those exceptions. In some cases, a debtor may have power to transfer another person's rights only to a class of transferees that excludes secured parties. See, e.g., Section 2-403(2) (giving certain merchants power to transfer an entruster's rights to a buyer in ordinary course of business). Under those circumstances, the debtor would not have the power to create a security interest in the other person's rights, and the condition in subsection (b)(2) would not be satisfied.   7. New Debtors. Subsection (e) makes clear that the enforceability requirements of subsection (b)(3) are met when a new debtor becomes bound under an original debtor's security agreement. If a new debtor becomes bound as debtor by a security agreement entered into by another person, the security agreement satisfies the requirement of subsection (b)(3) as to the existing and after-acquired property of the new debtor to the extent the property is described in the agreement.   Subsection (d) explains when a new debtor becomes bound. Persons who become bound under paragraph (2) are limited to those who both become primarily liable for the original debtor's obligations and succeed to (or acquire) its assets. Thus, the paragraph excludes sureties and other secondary obligors as well as persons who become obligated through veil piercing and other non-successorship doctrines. In many cases, paragraph (2) will exclude successors to the assets and liabilities of a division of a debtor. See also Section 9-508, Comment 3.   8. Supporting Obligations. Under subsection (f), a security interest in a “supporting obligation” (defined in Section 9-102) automatically follows from a security interest in the underlying, supported collateral. This result was implicit under former Article 9. Implicit in subsection (f) is the principle that the secured party's interest in a supporting obligation extends to the supporting obligation only to the extent that it supports the collateral in which the secured party has a security interest. Complex issues may arise, however, if a supporting obligation supports many separate obligations of a particular account debtor and if the supported obligations are separately assigned as security to several secured parties. The problems may be exacerbated if a supporting obligation is limited to an aggregate amount that is less than the aggregate amount of the obligations it supports. This Article does not contain provisions dealing with competing claims to a limited supporting obligation. As under former Article 9, the law of suretyship and the agreements of the parties will control.   9. Collateral Follows Right to Payment or Performance. Subsection (g) codifies the common-law rule that a transfer of an obligation secured by a security interest or other lien on personal or real property also transfers the security interest or lien. See Restatement (3d), Property (Mortgages) § 5.4(a) . See also Section 9-308(e) (analogous rule for perfection).   10. Investment Property. Subsections (h) and (i) make clear that attachment of a security interest in a securities account or commodity account is also attachment in security entitlements or commodity contracts carried in the accounts.   ANNOTATION   Law reviews. For article, “The Revolution in Consumer Credit Legislation”, see 45 Den. L.J. 679 (1968). For article, "Buyer-Secured Party Conflicts Under Section 9-307(1) of the Uniform Commercial Code", see 46 U. Colo. L. Rev. 333 (1974-75). For article, “Secured Transactions — Part I: Attachment, Perfection and Priorities”, see 11 Colo. Law. 2939 (1982). For article, “Commercial and Corporate Law”, which discusses a Tenth Circuit decision dealing with description of crops in financing statements, see 65 Den. U. L. Rev. 469 (1988).   Annotator's note. The following annotations include cases decided under this section as it existed prior to its 2001 repeal and reenactment.   When security interest may attach to debtor's accounts receivable. A security interest cannot attach to the accounts receivable of a debtor, if the debtor does not have a “right to payment”, Weld Colo. Bank v. E & E Constr., Inc., 653 P.2d 758 (Colo. App. 1982).   Security interest may attach to accounts receivable of public contractor. A bank's security interest in the accounts receivable of a public contractor is valid only insofar as the contractor has rights to the funds retained by the public body to ensure the payment of any claims against the contractor. Where a supplier files a notice of claim with the public body, the contractor has no rights to these funds until this claim is settled. Thus, the security interest does not attach to these funds. Heinrichsdorff v. Raat, 655 P.2d 860 (Colo. App. 1982).   Right of reformation due to mutual mistake not displaced by this section in cases of security agreements. Although this section requires a security agreement to be in writing, the fact that an agreement must be in writing to satisfy a statute of frauds is not inconsistent with reformation of that written agreement if, by the reason of mutual mistake, the true agreement of the parties is not expressed in writing. Medallion Biomed., LLC v. Rosania, 298 B.R. 442 (Bankr. D. Colo. 2003 ).   Interest under § 38-22-127 claim takes priority over prior perfected security interest. An unsecured supplier claiming an interest under § 38-22-127 , which imposes a trust fund for materialmen and laborers, takes priority over a prior perfected security interest in all present and future accounts receivable and proceeds of accounts. First Com. Corp. v. First Nat'l Bancorporation, Inc., 572 F. Supp. 1430 (D. Colo. 1983 ).   There is an inconsistency between this section and former § 4-9-306 on subject of proceeds. Fort Collins Prod. Credit Ass'n v. Carroll Dairy, 37 Colo. App. 536, 553 P.2d 95 (1976) (decided prior to the 1977 amendment of this section and § 4-9-306 ).   Lessor has no security interest in extracted gravel remaining on leased premises. The owner of a gravel pit who executes a lease allowing the extraction of gravel from his pit does not have a security interest in extracted gravel remaining on the leased premises after the right to extract gravel is terminated. The lessee acquires possession of the gravel once it is extracted. Palmer v. Corey (In re Musick Constr., Inc.), 34 B.R. 105 (Bankr. D. Colo. 1983 ).   Security agreement which provides that secured collateral includes debtor's tangible personal property “now or hereafter acquired” does not cover property subsequently acquired by a third party who purchased debtor's property in foreclosure. This is true even though the third party has a director, officer, and minority shareholder in common with the debtor. Vance v. Casebolt, 841 P.2d 394 (Colo. App. 1992).   Trial court did not err in holding that an unpaid seller in a cash sale did not take priority over a perfected security interest. UCC applies to determine when the title to heifers passed. Here title passed to debtor upon delivery of heifers to debtor. At the time of delivery creditor's interest in the heifers was sufficient to allow creditor's perfected security interest in after-acquired property to attach. This interest takes priority over the interests of the cash seller. Coop. Fin. Ass'n v. B & J Cattle, 937 P.2d 915 (Colo. App. 1997).   Trial court did not err that value had been given. Agreements, including assuming the responsibility to pay long-tem liabilities and entering into a security agreement, constituted sufficient consideration to support a simple contract. Compass Bank v. Kone, 134 P.3d 500 (Colo. App. 2006).   Under the circumstances, a stock redemption agreement and its various incorporated exhibits constitute an integrated and authenticated security agreement that provided a description of the collateral. Compass Bank v. Kone, 134 P.3d 500 (Colo. App. 2006).   Applied in Welbourne Dev. Co. v. Affiliated Clearance Corp., 28 Colo. App. 313, 472 P.2d 684 (1970); Guy Martin Buick, Inc. v. Colo. Springs Nat'l Bank, 32 Colo. App. 235, 511 P.2d 912 (1973), aff'd, 184 Colo. 166 , 519 P.2d 354 (1974); Young v. Golden State Bank, 39 Colo. App. 45, 560 P.2d 855 (1977); Bank of Am. Nat'l Trust & Savings Ass'n v. Denver Hotel Ass'n Ltd. P'ship, 830 P.2d 1138 (Colo. App. 1992).