Digital repo

On July 1, changes in the Uniform Commercial Code will affect millions of daily business transactions nationwide.

Ohio is just one of 27 states that adopted revisions to Article 9 of the UCC, which was updated to take into consideration emerging forms of e-commerce. The District of Columbia also adopted the changes, and there is a growing movement to get the remaining 23 states on board before the law takes effect.

Article 9 deals with a lender’s interest in personal property used as collateral to secure payment of an obligation. For example, when a bank lends money to a car buyer, it often assumes an interest in the car. That allows the bank to repossess the vehicle if the buyer fails to make payments.

But how can a lender secure an interest in intangible property? How can it protect itself when lending money to a dot-com, where the primary assets are a software program and a URL? These are some of the issues solved in Article 9’s latest revision.

The old statute was written an a time when the economy was goods based. Today, it is a smart-goods based economy, and nowhere is this more evident than with Internet companies, where the important assets are nonreal or intangible.

Often, these businesses own computer equipment, a URL (a Web address) or a database. It’s difficult for a lender to take an interest in those items. That’s left many wondering how they can protect themselves vis–vis those assets.

Software ownership is a good example of the challenge to define property in this Information Age. Under the new Article 9, software is considered an intangible type of property. However, software embedded in hardware is defined as “goods,” making it a secure form of collateral.

“The new Article 9 will bring about a seismic shift in lending practices,” says Corinne Cooper, editor of “The New Article 9, Uniform Commercial Code, Second Edition,” published by the American Bar Association Section of Business Law.

“Every company that holds a security interest in personal property in the United States should ask its lawyer what it needs to do to protect itself,” Cooper says. “The nature of secured lending is changing, which will affect finance companies, credit unions, banks, automobile leasing companies and virtually anyone who sells on secured credit.” How to reach: ABA Section of Business Law,

Kim Palmer ([email protected]) is managing editor at SBN Magazine.