I culled the following from a security agreement on EDGAR:
… SwissINSO hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to the Secured Party a lien on and security interest in, all of SwissINSO’s right, title and interest in, to and under, all of the property and assets currently owned by or owing to, or hereafter acquired by or arising in favor of, SwissINSO, wherever located …
I’d be pleased to have secured-transactions lawyers sound off on the following issues:
- The string “grants, assigns, conveys, mortgages, pledges, hypothecates and transfers” seems way out of control. Why not just “grants”? For example, why “hypothecates”? Yes, I know that it means, in a nutshell, “to pledge without delivery of title and possession.” But consistent with what I said in this recent post, to accomplish a hypothecation, you don’t need to use that clunky word, thank goodness—instead, that’s determined by the terms of the deal.
- And why use both “lien” and “security interest”? Are those meant to be synonyms? Or are two different rights being granted?
- Why use “right, title and interest”? Why not just “interest”? That seems the broadest term.
- Do we really need “in, to, and under”?
- What’s the difference between “property” and “assets”?
- And do you get tired of dealing with this sort of verbiage?
9 thoughts on “Calling All Secured-Transactions Lawyers: Issues Regarding Language Granting a Security Interest”
Ken, I would so love to see a justification for this string of words, which is similar to strings I have seen in some US IP assignments.
As for “right, title and interest”, this set of words has a long tradition in the common law of property. For example, section 63 of the English Law of Property Act 1925 (http://www.legislation.gov.uk/ukpga/Geo5/15-16/20/section/63) provides as follows:
(1) Every conveyance is effectual to pass all the estate, right, title, interest, claim, and demand which the conveying parties respectively have, in, to, or on the property conveyed, or expressed or intended so to be, or which they respectively have power to convey in, to, or on the same.
(2)This section applies only if and as far as a contrary intention is not expressed in the conveyance, and has effect subject to the terms of the conveyance and to the provisions therein contained.
(3)This section applies to conveyances made after the thirty-first day of December, eighteen hundred and eighty-one.
I have never researched the precise difference between a right and an interest in property law (guess: is a right a contractual right, but an interest a property right?), but would be nervous about assuming that one is subsumed by the other, and think these are probably terms of art (to respond to your other post).
As for in, to or under, that is just pedantic grammar (right in, title to, interest under). I agree we can probably ditch it in the interests of simplicity.
A further guess (working assumption) is that lien is an example of a security interest. From looking into something called vendor’s liens a couple of years ago, I think liens are certainly examples of charges. I am not sure without thinking about it whether there are other types of security interest that are not charges.
PS I ran Article 1 of that contract through the BlaBlaMeter (http://www.blablameter.com/index.php) and it received the following rating:
“Bullshit Index :0.32
text shows indications of ‘bullshit’-English. It’s still ok for PR or
advertising purposes, but more critical audiences may be skeptical.”
Not sure about “ok for PR…”!
I write not as an expert on security interests, but just as plain ol’ country lawyer (which isn’t true either). I did, however, take the course.
Since security interests in chattels (is that word jargon or a term of art?) are governed, in 49 of 50 US states, by the Uniform Commercial Code, it may be instructive to look at the terminology used in that statute. In the general definitions we find the following:
interest” means an interest in personal property or fixtures which
secures payment or performance of an obligation. “Security interest” includes
any interest of a consignor and a buyer of accounts, chattel paper, a payment
intangible, or a promissory note in a transaction that is subject to Article
9. “Security interest” does not include the special property interest
of a buyer of goods on identification of those goods to a contract for
sale under Section 2-505,
the right of a seller or lessor of goods under Article
2 or 2A to retain or acquire possession of the goods is not a “security
interest”, but a seller or lessor may also acquire a “security interest” by
complying with Article 9. The retention or reservation of title by a seller
of goods notwithstanding shipment or delivery to the
buyer under Section 2-401 is limited in effect to a reservation of a “security
interest.” Whether a transaction in the form of a lease creates a “security
interest” is determined pursuant to Section 1-203.
The first sentence does all the heavy lifting, and (pace the improper use of “which”) says that a security interest is, duh, an interest. Therefore all the rest of the string you cite is superfluous.
As to “grant,” etc., one will search in vain for the term (or any of them) in Article 9 of the UCC, which covers security interests, except for one use in connection with filing forms. The operative provision about the creation of a security interest is section 9-203:
Except as otherwise provided in subsections (c) through
(i), a security interest is enforceable against the debtor and
third parties with respect to the collateral only if :
(1) value has been given;
(2) the debtor has rights in the
collateral or the power to transfer rights in the collateral to a secured
(3) one of the following conditions is met:
(A) 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;
(B) the collateral is not a certificated security and
is in the possession of the secured party under Section 9-313 pursuant
to the debtor’s security agreement;
(C) the collateral is a certificated security in registered
form and the security certificate has been delivered to the secured party under
Section 8-301 pursuant
to the debtor’s security agreement; or
(D) the collateral is deposit
accounts, electronic chattel paper, investment
property, or letter-of-credit rights,
and the secured party has control under Section 9-104, 9-105, 9-106,
or 9-107 pursuant to the debtor’s
What I take away from this is that, like other areas of the law that Ken discusses, the recitation that something is being done is irrelevant, and what counts is whether the thing is actually done. One may call it what one wills, or call it nothing at all.
Vance: Thank you for this! Ken
Ken: I’m not a secured transactions specialist, but I feel qualified to answer your last question: Yes.
I stopped being a lending lawyer about 10 years ago, but IIRC “grant a security interest” covers everything (other than agricultural liens) under UCC Article 9, full stop.
The revision of Article 9 in 2001 got rid of a lot of this garbage.
Not everyone got the message.
What follows is based on my understanding of Canadian (Alberta) law. Whether
there are similar issues raised under US federal/state law I cannot say.
Also the PPSA/UCC9 type legislation does not deal with
interests in real property. Many of the security agreements you are reviewing
are probably trying to include language to include all types of property
(regular personal property, real property interests, and interests in assets
that have specialized statutes addressing them). The interaction of the PPSA/UCC9 type
legislation which deals with “security interests” and some of the
really old federal legislation that fixates on “title” has yielded
some weird priority results.
For purposes of a pure PPSA type priority battle (i.e. all claimants
subject to PPSA with no unusual priority regimes under federal law), I would
agree that “grants a security interest” would be sufficient.
However, for those “weird” federal statutes
(particularly for “bank act security” under the the Bank Act) “title”
is king. It is generally accepted that “granting” a PPSA security
interest does not transfer/move “title”. However, under the federal
legislation such as the Bank Act the efficacy of bank act security is affected
by “title”. Thus a creditor that wanted to try to prevent a future
bank lending to the same borrower from making a bank act security claim in
priority to the creditors security interest claim, that creditor would want
language that indicated that the title held by the debtor had been transferred
to the creditor as part of the arrangement. Thus the creditor will probably
include words such a “conveys”, “mortgages”,
“pledges”, or “transfers” to indicate that this higher
plane of “title” interest had been achieved.
As for interests in real property (speaking from the narrow
perspective of Alberta land titles Torrens system) I believe that it is generally understood
that “grants a security interest” would not be sufficient and that
some words of “conveyance” would be needed (i.e. mortgages or transfers).
This is a contorted area of law which many attempts have
been made to try to fix over the years. Given
the contorted nature of the law it probably not surprising that the documents
drafted to try to navigate this legal landscape also use contorted language.
FYI as an aside. In many of Canadian jurisdictions there is
a specific section that says if the property charged is described as “all
present and after-acquired personal property” these words with nothing
else will catch all assets that could be caught under the PPSA.
FYI as an aside. Many agreements in Canada try to be set up to be used across all
Provinces in Canada.
The legislation in all Provinces is not the same. It is my understanding that
historically in Quebec (the only civil law jurisdiction
the term “hypothec” was the key term to be used in secured
transactions. This may be a reason for the reference to “hypothecate”
in Canada (i.e. so the
agreement contains the necessary “magic words” to fit within the old Quebec regimes). I
believe that Quebec
also has adopted a PPSA/UCC9 type statute so I suspect that the need for
“hypothecate” is probably now gone.
Gord: Thank you for this; I’ll chew it over. If you’d like to tell me what text is missing from your second sentence, I’d be happy to restore it. And sorry about the glitchy formatting; I haven’t been able to fix it entirely. Ken
I am a finance lawyer and a real estate lawyer.
To me, the word “mortgage” seems particularly out of place in a straight security agreement. I would typically use a security agreement to grant a security interest in UCC collateral. For real estate, there would be a mortgage or deed of trust to record in the land records of the county in which the real estate is located. (As a matter of practice, it would likely be a combination mortgage, security agreement and fixture filing, to cover the related personal property as well).
If this were a real estate document, I would be careful about messing with the granting clause, though. The reason is that I would want the document to include whatever words the applicable mortgage or conveyance act uses. If the form might be used by different authors or for different jurisdictions, I’d probably err on the safe side and leave all that verbiage in – with the possible exception of “hypothecate”, which to me at least has a distinctive Canadian connotation.