Ask Me Help Desk - Uniform Commercial Code

I have a friend that is selling a business on contract. The lawyer for the person buying the business is insisting on a UCC in the sales contract. The lawyer for the person selling the business is recommending against a UCC. I have read about UCC's in my real estate book and cannot understand why the lawyer would recommend against it. Any ideas?

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The lawyer for the person buying the business is insisting on a UCC in the sales contract.

The answer is that the seller's lawyer does not believe such a clause is in the seller's best interest; although it may well be good for the buyer. That's why they are doing the right thing: each having their own lawyer.

But I am confused as to what you mean by "a UCC". I'm guessing you mean a clause pertaining to the Uniform Commercial Code.

Generally security interests in personal property are perfected differently than mortgages and other liens on real property. They are filed according to your state's verision of the UCC, and not recorded as are real property liens. This is probably what you mean. It is in the buyer's interest to provide in the agreement that seller warrants an agrees to indemnify buyer with respect to UCC-perfected security interests on any property sold by the agreement. I'm guessing that's what you are referring to.

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I have read about UCC's in my real estate book and cannot understand why the lawyer would recommend against it.

Let's say, for example, that the seller's attorney knows about a perfected security interest in the inventory that is to be sold to the buyer of the business. It hasn't been paid for, and so the retailer has a perfected UCC security interest in the inventory. If were to be a UCC clause in the sales contract, seller would have to be responsible to see that the inventory was paid for by the buyer of the business. It could get complicated.

UCCs are basically guidelines issued by the Federal government to standardize state laws. They are an attempt on the part of Feds to make sure there is consistency when things transcend state lines.

So to say that an attorney is "insisting on a UCC" makes little sense. . The attorney may be insisting on a clause in the contract that refers to the UCC or a clause within it. So to be able to competently answer we would need to know what clause (the wording) the attorney is insisting on. It could be what AK suggested or it could be something else.

The main point is that the buyer's attorney is looking to protect his client's interests and the seller's attorney is trying to do the same. If they can't agree, they walk away from the deal.