Rice v. Miller
21 Misc. 3d 573 (2008)
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Rule of Law:
Under Article 9 of the Uniform Commercial Code, a security agreement granting a security interest in "general intangibles" is sufficient to create a perfected security interest in patents, as patents are considered a form of intellectual property that falls within the definition of general intangibles.
Facts:
- In August 2001, Clean Air Technologies International, Inc. (CATI) executed a $30,000 term loan note in favor of Corinne Rice.
- On August 21, 2001, CATI also executed a general security agreement granting Rice a security interest in various property types, including 'Documents; Instruments; Investment Property and General Intangibles'.
- The agreement stated the collateral included, 'WITHOUT LIMITATION, all property described in any schedule,' but no schedule listing the patents was ever created or delivered.
- At the time of the agreement, CATI owned an interest in two patents for equipment that tests vehicular emissions.
- CATI subsequently defaulted on the payment of the loan note.
- In December 2007, Rice demanded that CATI deliver the patents pursuant to the security agreement, but CATI refused.
Procedural Posture:
- Due to a default by Clean Air Technologies International, Inc. (CATI) on a loan note, Corinne Rice obtained a judgment against CATI in the amount of $40,841.11 in September 2007.
- Rice subsequently demanded that CATI turn over two patents as collateral pursuant to a security agreement between the parties.
- After CATI refused the demand, Rice filed a motion in the trial court for an order compelling CATI to deliver the patents and all related documents.
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Issue:
Does a security agreement that grants a security interest in 'general intangibles' reasonably identify and include patents as collateral under Article 9 of the Uniform Commercial Code?
Opinions:
Majority - John M. Curran, J.
Yes. A security agreement that grants an interest in 'general intangibles' reasonably identifies and includes patents as collateral under UCC Article 9. The court reasoned that both the prior and revised versions of UCC Article 9 treat patents and other intellectual property as a subset of 'general intangibles,' a residual category for personal property not otherwise classified. Citing UCC § 9-102, Comment 5(d), the court confirmed that examples of general intangibles include 'various categories of intellectual property.' Therefore, the term 'general intangibles' is a sufficient description under UCC § 9-108(a) because it 'reasonably identifies' the patents, making their identity as collateral objectively determinable. The court also rejected the argument that the patents had to be listed on a schedule, finding the contract language 'including WITHOUT LIMITATION, all property described in any schedule' to be unambiguous, meaning the schedule was illustrative, not an exclusive requirement.
Analysis:
This decision reaffirms the broad scope of the term 'general intangibles' under UCC Article 9, solidifying its application to intellectual property like patents. It clarifies for both creditors and debtors that a categorical description of collateral in a security agreement is sufficient for attachment and perfection, provided it 'reasonably identifies' the property. The ruling underscores the importance of precise contract drafting, showing that broad, categorical grants will be enforced according to their plain meaning, and that phrases like 'without limitation' are legally significant in preventing a narrow interpretation of collateral descriptions. This provides certainty for lenders who rely on intellectual property as collateral without needing to list every single patent, copyright, or trademark individually.
